Ainslie Bullion - Daily news, Weekly Radio and Discussions

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Sun May 15, 2016

China – When Stimulus is Turned Off…

It could be a rough day on the Aussie share market today. Like it or not, but we catch the cold when the Chinese market sneezes. April data released over the weekend showed a slowdown in industrial production, property investment, and retail sales. That (for listeners of our weekly podcast) is nothing new but it was just after an incredible $1 trillion injection from the Chinese Government in the first quarter after their assertion they will maintain strong growth even if that meant more stimulus. And stimulate they did, with annual credit growth hitting 15% in the first quarter.
The front page of today's AFR includes a headline story on reports that the Chinese President, Xi Jinping, is not in favour of more stimulus, and hence in direct contradiction to Premier Li Keqiang's policy. He reiterated the need for a consumption based, not investment based, economy – something that hasn't worked to date, and certainly not good for Australian miners. This was reflected in a more than halving of new loans in April and possibly already those aforementioned poor figures from the weekend.
Of course iron ore has fallen sharply in the last week and that is not good news for an Aussie government basing budget forecasts on $55 ore. But more broadly it could see an end to the commodities bounce in general. The much bigger elephant in the room is the question of how the world's second biggest economy fares without all that stimulus.
For gold and silver there are a number of implications. If the Chinese turn to more risk-off investments we may see a rebound in gold consumption after demand this year has slipped back to 2013/14 levels off the record highs last year. Should their market crash in response, the worldwide contagion, especially if accompanied by a big Yuan devaluation, would of course see a flight to gold and silver. History would suggest they would intervene regardless of this 'stance' but that would just add more debt to the already 300% of GDP burden they are trying to get down. That just makes the inevitable crash all the bigger. In the short term, if commodities all come off, we may even see a decline in the silver price, presenting more of this wonderful buying opportunity before its 'monetary' use outweighs its industrial use. It's the beauty of silver…. It wears two hats. However keep in mind Aussies have another dual dynamic and that is our Aussie dollar. A decline in commodities would see a decline in the AUD and hence a lift in your metals price.

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Mon May 16, 2016

Bank of America’s Top 9 Reasons to Worry

Australia's ASX shrugged off the China stimulus news yesterday as low interest rates reign supreme and last night we saw $2.3b of gold contracts dumped onto the market in 10 minutes, wiping USD11 off the USD1286 spot process in the process (because that is how one sells when one wants to maximise profit huh…?). These, dear reader, are not normal times. Topically Bank of America Merrill Lynch Global Research yesterday joined the chorus of majors posting warnings of an imminent crash. BofAML list their top 9 reasons:
1) Stress in the High Yield bond market – as we reported in Friday's weekly wrap, high yield 'junk' bond yield spreads (or Distress Ratio) have spiked again as they did in February.
2) Corporate buybacks peaking – not since the previous peak in 2007 have we seen the amount of companies (65% of the S&P500!) buying back their own shares (using debt).
3) Jump in expected negative profits - not since the GFC have we seen so many companies with 12 month projected negative EPS (earning per share). Remember too, that buying back your own shares improves your EPS growth….
4) Risks around Fed tightening – In the context of 3)… previous times of rate hiking during profit recessions have not ended well… Bets are still running on a rate hike as soon as June.
5) Weak IPO activity – Year to date IPOs (Initial Public Offerings – new public listings of companies) are at the lowest level since the GFC, and in dollar terms the lowest since 2003 after the dot.com crash.
6) Tightening bank lending – Banks have tightened credit standards for the last 3 consecutive quarters. That hasn't occurred since the onset of the GFC. Put that in the context of all the freshly printed money in the system too.
7) Further weakness in oil – BofAML are predicting another plunge in oil in Q3 this year, taking equities down with it.
8) US Election Uncertainty – to be sure the Trump factor is at play, but it goes well beyond that. The US Policy Uncertainty Index, one closely aligned with the market's VIX (volatility index) hasn't been this high since the 2013 Government Shutdown. BofAML are predicting it to increase in the lead up.
9) BREXIT risks – 23 June is getting close for the vote on the UK leaving the EU and polling is very close. Should the vote come in favour they predict a 15% fall in markets on that alone. (Outside of BofAML there are far worse predictions in terms of contagion from EU).

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Tue May 17, 2016

Soros – Heavy Gold and Shorter Equities

Whilst media attention has been on Buffett’s disclosed Apple share holdings, the other big reveal from the “13F” regulatory filings reports in the US was that of George Soros. For newer readers Soros is a global hedge fund legend who built a $24billion fortune with savvy bets on major market moves. Of late he has been vocal in his warnings on China’s economy, saying its debt fuelled and overburdened economy resembles that of the US just prior to the GFC. In January he stated a hard landing in China was “practically unavoidable” and that a market crash would ensue.

Yesterday’s 13F showed he slashed his long equity holdings by more than 25% to $4.5billion as at the end of March 2016, his lowest since 2013. He also more than doubled his short position on US shares with a 2.1million share Put on SPY worth around $430m.

Not surprisingly then, he has gone heavy into gold, both taking a 1.7% stake in Barrick Gold (the world’s largest gold miner, and making him the biggest US listed holding) and a 1.05 million share call (long) option on SPDR Gold Trust worth about $124m.

On how to make money, George Soros once famously said:

"Find a widely held precept that is wrong and bet against it".

When others were calling gold a ‘pet rock’ the likes of George Soros were increasing their positions. That’s how you get to $24biliion….

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Wed May 18, 2016

Fed Flags June Rate Rise!

Markets reacted strongly last night on the release of the US Fed minutes for the April meeting where they held rates steady. The reaction came from the surprise that “most” on the (FOMC) Fed committee expected the next hike to be in June. This took June hike odds from just 4% to 28% before and after the news. September is now running at 60%.

The minutes illustrated a Fed painted into a corner. They acknowledged the growing threat of asset bubbles fuelled by their easy money (note to RBA….), they made it clear any hike in June would be ‘data dependent’ (listeners to our weekly wrap podcast know that is not great), and moreover they continue to be greatly concerned by the global economy and the knock-on effects of a rate rise. Indeed the April meeting minutes mention ‘global’ 15 times. They specifically mentioned the Brexit referendum on 23 June and “unanticipated developments associated with China’s management of its exchange rate”. The latter is the real elephant in the room. Since the market routs caused by the Yuan devaluations in August last year and earlier this year, China have ‘played nice’ and not ventured there again – helped of course by a falling USD. A rate rise, as we saw just on the expectation alone last night, sees a stronger US Dollar. A stronger US Dollar when you are pegged to it like China’s Yuan and you are a major exporter is not a great thing. Add in growing tensions in the South China Sea and China have at their disposal a pretty big stick.

In the short term, as we again saw last night, a stronger USD can see downward pressure on gold. It came off USD20 on the news last night alone as the USD jumped. The key thing investors might want to remind themselves of is the bigger picture of the ‘unintended consequences’ of that rate rise and the higher USD and ask a. Will they actually do it?; and b. What will happen to global markets afterward. It might be timely to look at the market action in January after December’s rate hike…

This is by no means a simple situation. The Fed knows they must at some stage hike or otherwise continue to fuel the biggest debt binge based asset bubble in history. On the other hand there is probably the realisation they have left it too late and any hike could well trigger one of the biggest crashes in history – it is a globally connected system of debt, derivatives and currency wars like never before. A couple of mentions of ‘history’ there…. There is one asset class that has a few thousand years of history of being the safe haven asset of choice….

Finally this diagram sums up the other outcome courtesy of Bank of America Merrill Lynch…

Image

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Thu May 19, 2016

Central banks, Gold & The Wakeup Call

Lets take a little walk through recent history… When we left the gold standard (where money was backed by gold) in the early 70's central banks (in theory) didn't need gold in their reserves and they became net sellers. That also marked the beginning of the biggest credit expansion in history as the discipline of gold was abandoned and debt was used to 'fix' politically inconvenient but 'financially natural' phenomena (take note of all the spending promises here in Australia until 2 July election – its ALL deficit funded). The credit expansion party was awesome, the rich got much richer and everyday people borrowed off their mortgage to feel just as rich. Then a little thing called the GFC happened. This was the first serious wakeup call that maybe all this debt wasn't such a great thing. Of course, since then global debt has expanded by another 40% to try and double down and reflate the economy (ironically lagging under said debt) to the point where global debt sits at around $200 trillion and growth is moribund at best.

Central banks clearly saw the GFC for the wakeup call it was. The chart below shows net central bank purchases. You might notice a change in behaviour since the GFC…

Image


Now we are not saying for one minute all central banks have been fiscally prudent since the GFC. Indeed it is arguably the opposite. They have printed money at a reckless pace and suppressed rates to even negative territory to fuel that debt expansion. What the chart above might indicate is they are putting their 'hedge' in place for what they've done in the chart below (hint – an 'asset' on a central bank's balance sheet is in fact debt . It is the bonds associated with all the money they've printed):

Image

Most of the commentary explaining gold's big rise in 2016 has been around a growing loss of faith in these very same central banks. That the Fed might raise rates in June with the obvious ramifications reinforces that. And that is why this final chart shows first-quarter-only sales of investment gold this year approaching full year sales since 2013. This is the flight to safety that always happens in times of trouble.

Image

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Sun May 22, 2016

Rising US Rates and Gold

The recent World Gold Council demand trends report for the first quarter of this year (that we summarised here) shed light on the enormous inflows of gold into ETF’s this year. The chart below puts that into perspective in comparison to the last quarter.

Image

Gold had a bit of a rough week last week. Much of the pressure came courtesy of hawkish (less accommodative and more likely to put rates up) comments from the US Fed with growing expectations now of a June rate hike. This is interesting given what we’ve seen since the December rate hike. i.e. gold and silver UP around 20% after the initial dip. Wall St is going hard on gold and it’s not letting up with last week seeing the biggest weekly inflows to the gold ETF GLD this year. In the futures market too, the managed money category just hit another high in long gold positions. All this AFTER a December rate rise. The table below sheds interesting light on the misconception by some that rising rates means falling gold:

Image

So the gold price and interest rates are positively correlated most of the time. The main exception is gold rising as interest rates fall (the second over the GFC). Indeed casting the net even further back and over 60 years we have never seen an increased interest rate resulting in lower gold prices.

We’ve reported before too, that the Fed have a shocking record of raising rates too late or when the market’s not ready. That is arguably more true now than any time before. There is a reason why Wall St is jumping so heavily into gold and silver (albeit via paper trades like ETF’s and futures). That reason may simply be history.

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Mon May 23, 2016

SMSF's & Billionaire's Crash Bets

We've recently written of Wall St legends Druckenmiller and Soros, and investment banking giant BofA Merrill Lynch all warning of a major crash soon.

Another Wall St giant, Carl Icahn of Icahn Enterprises (a $5.8b fund that he personally owns 90% of, making him one of the world's 50 richest people) has just positioned himself for a major crash. His themes are similar to the above. He talks of companies addicted to debt and financial engineering to artificially make profits look bigger on paper. He also reinforces the belief that all this cheap and printed money by the Fed simply inflated financial markets and not the broader economy. He sees how this experiment will fail:

"I've seen this before a number of times… And I think a time is coming that might make some of those times look pretty good."

Only one quarter ago he was already very bearish with his fund carrying a "net short exposure" of 25% on shares. Simply put he has 25% more short (betting, and profiting, on a drop in markets) positions than long. That is pretty bearish. But last quarter's report, recently released, shows he has increased that short position by 600% to an incredible net 149%! In his words

"We're much more concerned about the market going down 20% than we are it going up 20%."

Such drops on Wall St almost certainly will be reflected here in Australia. Now you may well be relaxed about this as you are 'out of the sharemarket' and own some gold and silver personally. But what about your Superannuation? The reality is most super funds are still very heavily invested in shares… it's all they know how to do.

For some reason many people don't give much thought to Super. It's something that just happens in the background and, besides, retirement is a long way off. Wrong. There has arguably never been a more important time to take control of your super yourself through a Self Managed Super Fund (SMSF). What few people 'get' is that should the shares that make up the majority of your industry or investment house super fund drop by 50% (ala GFC), you need to make 100% gains on the resultant value just to get back to where you started before the drop. Whilst retirement may be a long way off for some, it can take a LONG time to make 100% on your money. Learn a little more here and take control of your future. The hurdle of the cost to set one up may well pale to what you could lose by doing nothing. When the likes of Druckenmiller, Soros and Icahn are protecting themselves from a major crash, it's time to protect yourself too.

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Tue May 24, 2016

Confiscating Your Super

Carrying on from yesterday’s article, a little over a year ago we wrote about the dangers inherent in being in the big industry and managed money super funds (it’s worth revisiting before reading on). As touched on in that article there is in fact a history of Government’s confiscating or raiding super funds, almost without exception at times when the Government desperately needed the money due to their own fiscal mismanagement and all around the time of, or immediately after, a financial crisis. Depending on your view, many believe that is what is coming on the next and unprecedented financial crisis. Here is a list of these instances:

October 2008 – Argentina

The Government seized $30b in private pension funds, placing it into their government social security system. Dressed up as protection for its people it also just happened to address a $12b bond payment shortfall issue the government had…

December 2010 – Portugal

The government moved $2.5b of pension fund assets of the largest Telco into their own social security system. The fund also had to make up for balance sheet shortfalls for 2 years afterward as well and those funds were used to reduce the government’s deficit…

December 2010 – Hungary

Citizens were forced to transfer the private component (1/3) of their pension fund into the government component of the joint $14.2b fund or face losing their government component benefits. The state used the funds to pay state pensions and reduce debt…

December 2010 – Bolivia

The government simply nationalised the 2 largest private pension funds worth $3b.

May 2011 – Ireland

The government unilaterally garnished 2.4% or $2.6b of private pensions over 4 years to fund a spending promise. The ‘tax’ was not applied to state pensions, only private…

December 2011 – Portugal

The government moved the assets of their 4 biggest banks, the assets of which were largely private pension funds, onto their own balance sheet. They used the $7.7b seized to meet the EU/IMF bailout requirements for deficit:GDP ratio.

September 2013 – Poland

The government confiscated around half of the assets of private pension funds, held as bonds, with the balance to be transferred over 10 years. Held then in the government’s state pension system it also reduced their debt to GDP and allowed them to borrow more…

March 2015 - Greece

The government passed a bill that allowed all pension funds kept in the Bank of Greece to be fully invested in Greek sovereign bonds (you know, the same Greek bonds that the PM and Treasurer both admitted were “unsustainable” and “will never be repaid”….)

SMSF’s in Australia would be nigh on impossible to ‘nationalise’, roll into a state controlled fund, etc etc. An SMSF allows you to get out of these big super (private pension) funds and start protecting your future. Learn more here, call us or visit our store to discuss.

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Wed May 25, 2016

Weight of Debt v Hope

We speak often of debt being the core catalyst for the world's next financial crisis, as indeed, it was for the last in 2008/09. As the world learned (and seemingly shrugged its shoulders) in 2014 from the McKinsey report, we have not learned from the GFC but instead doubled down, adding 40% or $57 trillion of debt in the years since to try and reflate the system. A chunk of that debt has been companies borrowing to buy their own shares to prop up their share price. But at some stage the sheer weight of that debt becomes too much. As usual Vern Gowdie says it nicely:

"Global debt has reached the stage where it's now counterproductive. Debt, once the fuel of economic growth, is now a lead weight. Never before in the recorded history of money has there been a cumulative debt pile (measured as a percentage of GDP) as large as there is today. Every recorded period of excessive debt accumulation has ended in a crisis."

If you take that weight analogy and apply it to the chart below of US company earnings it makes a lot of sense. You can see the gradual decline in earnings under the weight of that debt. The really sad thing is (for those believers going 'all in' on shares) is that the projected earnings, to the right of the green line, are so easily and unquestioningly believed by some. This is investment by 'hope' not logic.


Image

It's also a little instructive on the discussion above. The only time such fast growth in earnings occurred before was in the debt and easy money fuelled rebound of 2009. That was both after a crash and in response to new fresh debt. What we have now is the pattern of before the crash under the weight of all that accumulated, and no longer fresh, debt. The evidence just keeps on building, day by day, measure by measure….

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Sun May 29, 2016

COMEX – Record Commercials Long Jump!

Fresh off our posts on Friday on the London 'Paper' Gold Market and First Majestic's very bullish view on silver going forward it was interesting to note the COT (Commitment of Traders Report) on Saturday. The COT report is issued each week by the CFTC (Commodity Futures Trading Commission) and provides a breakdown of the futures positions in gold and silver (and other commodities) for major traders. As we've reported before the 2 main categories are the "Managed Money" or so called speculators, and the Commercials, the big bullion banks and producers. The latter are often short as they essentially hedge their physical positions with paper. Of late the speculators have taken their long positions to historical highs riding the gold and silver bull markets this year. But the potentially very bullish action this week was the Commercials' all time biggest weekly jump in long positions (check out the vertical blue line below). This indicates the category who are the biggest gold expert participants are making a significant move. The speculators coughed up these long positions amid talk of the June hike and rising USD. Those investors not convinced to date that we've seen the USD spot price bottom in gold and silver will no doubt be looking at this very carefully. For Aussie investors in AUD gold and silver, many believe the bottom has been and gone as any potential further weakness in USD spot gold price would likely be courtesy of a strengthening (for now…) USD, which in itself ordinarily sees the AUD fall and buffering out the difference in metal price in AUD.

Image

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Mon May 30, 2016

Stepping Back for the Big Picture

Regular readers know we are big fans of Greg Canavan and Vern Gowdie of The Daily Reckoning. They have a great way of explaining what main stream media tends to ignore, looking at the bigger picture, and all with an Aussie context. Those following the gold market know it has had a rough couple of weeks as growing expectations of a June or July US rate hike is seeing a strengthening USD and downward pressure on gold. Our most recent discussion on this is here. Greg recently summarised it in his own way as follows:

"But there is the little issue of the strengthening US dollar. Global interest rate divergence (meaning higher rates in the US and continued easy money in Europe and Japan) is not a positive global macroeconomic backdrop.

This divergence means the US dollar will strengthen against the yen and the euro. It will also put pressure on the Chinese yuan again, as China competes in the export market against Japanese and European goods.

From a macro perspective, a strengthening US dollar is a headwind for the global economy. That's because it's the world's reserve currency. A strong US dollar puts pressure on commodity prices and emerging markets. It represents a tightening of global liquidity.

So, as you can see from this dynamic, the world economy is trapped in a no win situation. Higher rates in the US drains liquidity from the rest of the global economy and leads to a slowdown…which then leads to lower US interest rates and an increase in global liquidity and economic activity.

And around and around we go. So keep this in mind while the narrative of 'higher interest rates are good' grows stronger over the next few months.

Higher interest rates are indeed good. They are the only mechanism that will rid the economy of speculation and wasteful investment. Higher rates will cause short term pain, but they will also increase long term productivity, which is the Holy Grail of sustainable economic growth.

But it just won't play out like that. Debt levels are too high all around the world to risk higher rates. The only option is to try to generate enough inflation so that nominal rates rise while real rates stay low. The real interest rate is the nominal rate minus inflation.

Right now, the market is buying the Fed's preferred narrative. That is, the US (and global) economy can handle higher rates. That's leading to higher stock prices and an unwinding of bets on gold in particular.

As someone who thinks gold is at the start of a new bull market, this is not too concerning. In fact, after such a strong run, a pullback is always healthy. In the same way that the hedge fund speculators are pouring back into oil (via the futures market), the same thing has happened with gold over the past few weeks."

As a long term strategic investor, one could 'step back' and personally test the logic of Greg's argument. If you agree, as we do, you could see a path that might see you riding the gold bull (being overweight gold and light shares) while the world 'takes its medicine', and has the crash it needs by normalising rates. You might then sell down your higher priced gold weighting and go overweight the bargain shares before the long term productivity wave Greg discusses. The trick of course is the stepping back bit. Not many share-centric advisors or superfunds will do that… Note too we are not saying 'sell everything, buy gold and silver'. There is always the fact that no one really knows what will happen next, so a diversified portfolio is always prudent.

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Tue May 31, 2016

Brexit Has Citi Say "Buy Gold"

Last night saw both the end of May and also market fears escalate over a "Brexit" with the latest polls showing more in favour of Britain leaving the EU than staying.

The news weighed down on shares and saw big falls last night before a late mini rally got the Dow just over April's close to be just up for the month (but still down 0.5% on the night). Gold went up on the news. It was a month that saw sizeable corrections in both gold and silver, and more particularly the latter with silver seeing its worst month since September 2014, down 10.4%. As we reported yesterday a correction after such a rally was overdue and gold and silver are still up 15.7% and 16.5% respectively for the year, easily outperforming nearly any other asset class. Indeed Citi bank came out yesterday with a report predicting USD1,400 gold by year's end. On the current exchange with AUD that is $1936 in Aussie dollars and if the AUD is down around 60c by year's end as many predict, it would be $2,333. This is what Citi had to say:

"While prices have fallen 3% (month to date) in May, we believe this may in fact prove to be an opportune moment to 'buy the dip,'"… "The risk of 'Brexit' is likely to complicate matters for U.S. policymakers, and we do not expect the Fed to move until after the June referendum,"

This makes a lot of sense as the Brexit is probably one of the bigger Black Swans circling our financial skies at the moment (add in Trump victory, post rate hike crash, Chinese Yuan devaluation or major shadow banking default, Euro banks, etc). That the major polls (2 overnight) have "Brexit" clearly in front of "Bremain" makes this look more and more likely. Importantly these are polls taken after the WTO said there would be no easy path for British trade with Europe should they exit. It would seem the British see the EU as the ticking time bomb it is and want out. As Citi suggest, now might be the opportune time to increase your weight in gold amongst all this uncertainty.

Image

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Wed Jun 01, 2016

Why May Was Different to December

There is something very similar about the price action on gold right now and in the lead up to the December US rate hike as the graph below shows:



Image


The settings are similar. At the end of October 2015 we saw US Fed minutes clearly increasing the odds of a December hike, just like we did for the April meeting this year. We subsequently saw gold sell off from $1200 to $1050. May just saw gold come off 5.9%, its worst month since, you guessed it, November 2015 but importantly it didn't breach the support of $1200. However the analysts who produced the above graph at Commerzbank point out one key difference this time. Gold ETF's (such as GLD) saw more big inflows in May this year (80 tonne) whereas November 2015 saw 50 tonnes outflows. This reinforces Citi's advice yesterday that many seeing this as a 'buy the dip' opportunity. Indeed if you consider the graph below, whilst the Managed Money (financial speculators) net longs on COMEX dropped by a record 56,000 contracts to 24 May, you can see below they are still well and truly net long (betting on a rise), whereas last December they went net short. As we reported Monday, there are 2 ways to look at this and some might actually want to see those speculators net short again before feeling this correction is over. However as we pointed out yesterday there are a number of Black Swans circling right now that could see that all evaporate and the rush to safety overcome.


Image

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Sun Jun 05, 2016

Gold & Silver Jump '33' on Jobs Report

Those who awoke Saturday morning and checked the gold and silver prices were met with a big surprise. Gold jumped $33 and silver 33c.

So what happened? Against expectations of 160,000 new jobs for May in the US we instead saw an NFP payrolls report just 38,000 jobs added, the lowest number in nearly 6 years. Oh, and they quietly revised down the 160,000 last month to just 123,000, and March from the heralded 208,000 down to 186,000… But if that wasn't bad enough, we saw participation plummet by 664,000, with the total of people now not in the labour force at an all time record 94.7m. That meant the now completely meaningless 'unemployment rate' (which only counts people 'participating' in the work force) actually dropped to 4.7%.

The quality continues to decline too, with the last 2 months now seeing a total of 312,000 full time jobs lost, and only partly replaced with 118,000 new part time jobs.

So needless to say expectations of the June rate hike have come off sharply, now sitting at a resounding 'no chance' of 2% odds. A July hike dropped to 36% from 48%. Now remember a rate hike happens when 'everything is awesome'. Yet at the same time we see JP Morgan's Recession Indicator screaming a very clear warning….


Image

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Mon Jun 06, 2016

10 Charts Mapping the Decline of the US

Yesterday we reported on the US jobs report that saw the USD tank 2% whilst gold rose the same. That jobs report reinforced what regular listeners to our weekly podcast already know, and that is, the real US economy is a long way from being ready for a rate rise. Last night Wall St advanced 0.6% with the S&P500 hitting a 7 month high after Fed Chair Yellen reassured markets they would only raise rates gradually and only once the data supported that. More jaw-boning, free money for longer, lets all pile back into stocks*… Gold stayed firm.

The charts below have been doing the ‘web rounds’ of late but if you’ve missed them they are a telling set of ‘real world’ metrics. Their genesis was politically motivated as it sets out what has happened on Obama’s watch (shaded zones). The reality however is that most of it (apart from health care pre ‘Obamacare’) was on its way to this before he even started. This is a systemic political problem, not one of either ‘colour’. We are seeing exactly the same play out in the lead up to our federal election in July. The fact is the solution is hard and no politician relying on re-election wants to be the one to implement it.


Image


* As we’ve reported recently a very large portion of share purchases are by the company’s themselves not investors, so take “all” above with a grain of salt. It may well have been companies taking on more debt to buy more of their own shares. Recall the graph below which paints a very scary, unprecedented picture…


Image

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Tue Jun 07, 2016

Buying Bullion not ETF’s

We speak regularly of the shear amount of trade in gold and silver that happens in ‘paper’ markets – COMEX futures contracts and Exchange Traded Funds (ETF’s) as opposed to physical bullion. There is currently, and we stress currently, the anomaly whereby these trades, where a tiny fraction is backed by real available gold and silver, dominate the price fix that dictates all gold and silver trade.

ETF’s are back in favour this year with, according to the World Gold Council, a near record 364 tonne of gold flowing into them in Q1 of this year as even Wall St can see what’s coming. ETF’s are an easy vehicle, particularly if you are a Wall St type with full faith in the ‘system’ and don’t understand how easy it is to own the physical metal, and that it is usually cheaper than the 0.4% annual fee that usually comes with an ETF. The other lurking threat is counterparty risk, of which there is ZERO if you own your own bullion. Lawyer and financial analyst Avi Gilbert scoured through the PDS of the biggest gold ETF, GLD. This is his conclusion:

“In the event of a default of the trust in which the gold is held, one becomes an unsecured creditor of the trust. That means that the trust will likely be required to liquidate its positions in the metals, and satisfy the unsecured obligations of the trust, usually at pennies on the dollar. None of the gold being held in trust within the GLD is designated to each holder of shares on an individual basis. Therefore, all the owners of the GLD have equal rights to all the gold being held in trust. So, if there is not sufficient gold to satisfy all rights to that collective gold, all the owners are subject to a pro-rata reduction in their ownership interest in the total gold being actually held and on hand.”

Just a couple of days ago too we saw Bank of Montreal file their prospectus for their $500m physical gold fund where shares are denominated in ounces not dollars (ala ETF’s). There was a startling admission in that PDS, namely that their fund seeks to eliminate:

"derivatives risk (i.e., the use of unallocated gold, gold certificates, exchange-traded products, derivatives, financial instruments, or any product that represents encumbered gold)," as well as "'empty vault risk' or gold bullion lending risk (i.e., the practice of the gold custodian lending, pledging, hypothecating, re-hypothecating, or otherwise encumbering any of the investors' underlying gold bullion)."

That a major bank is essentially calling the others on their dodgy practices in an instrument lodged with the US SEC is incredible. Another sleeper, and one that strikes a chord with the weight of evidence of major banks manipulating these markets, is they warn that the "official sector" is active in the gold market and can affect prices….

We last wrote here of the allegation that J P Morgan are simultaneously suppressing prices with a massive ‘paper’ short position on COMEX whilst buying up over 400m oz of physical silver. The question is when do they take their foot off the shorts and let her go?

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Wed Jun 08, 2016

Record Silver COMEX Claims Per Oz Available

Yesterday we spoke mainly of the ETF side of the ‘paper’ or ‘digital’ trades in gold. Topically, this week also saw a new record reached in the silver COMEX futures market. We now have the epic setup of 42 contractual claims for every 1oz of registered physical silver. This is on the back of Registered silver inventories hitting an over 15 year low as this last week saw a massive 7 million oz removed to leave just 23m oz as you can see in the graph below:



Image



You will note from the chart that the last time registered inventories got this low coincided with silver peaking at $49 in mid 2011. Now there will be the usual responses to this so let’s address them.

Firstly, yes there are also the Eligible inventories on COMEX (from which metal moves into Registered for possible delivery) but as we’ve reported before many an expert believes that at times of particular tightness in the physical market, the COMEX participants move their metal into Eligible so that should the big squeeze occur, they have access to it by simply withdrawing it. The 2011 price spike to $49 saw exactly that. Even counting Eligible inventories we still have nearly 7.5 claims per ounce available. But be clear, those Eligible inventories are not automatically available so right now that 42:1 is more relevant.

Secondly, there’s the “yeah but they will just be paid out in cash” crowd. Yes that is absolutely true, but can you just imagine the price action when word got out that there wasn’t enough silver to satisfy a contractual claim on the worlds biggest futures exhange. Look what happened in 2011 when it just got a little tight! We are talking about very big numbers and very big players… How big?

The two largest silver shorts on COMEX, JPMorgan and Scotiabank, are collectively short around 104 days of world silver production, or almost three quarters of the length of the red bar in chart below. The top 8 traders are collectively short nearly 220 days or 60% of entire world annual production.

Image

For Gold investors, you can see it is the 3rd most strung out commodity traded on the futures market.

Whilst these guys play their precarious game, you have the opportunity to very easily buy physical silver bars and coins at the bargain price all this futures shorting has delivered on a (silver) plate…

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Thu Jun 09, 2016

The End of the Grand Credit Cycle

Listen to our Weekly Wrap podcast today and you get a very clear picture of the real global economy… poor economic data, official downgrades, and dropping and negative interest rates implemented to try and resurrect growth. What the world is learning the hard way is you can't just keep 'buying' growth with more and more debt.

Zerohedge have just taken the latest official debt and growth rates from the US and paint a sobering reminder of what's playing out. As the graph below shows the US added $645 billion of debt to it's "pile" in just the first quarter of this year, taking total debt to an eye watering and all-time record $64.1 trillion. So what growth did that new $645 billion buy them? Just $65 billion. The US's debt to GDP ratio is now 352%!

Image


One quarter 'does not a summer make' you say? Let's, then, step back and look at the situation. Can we remind you too, that we left the fiscal discipline of the gold standard in 1973 (you'll spot that easily on the graph below) and launched the biggest credit cycle planet earth has even seen.

Image

The thing is credit cycles throughout history have always collapsed, erasing untold amounts of 'paper' wealth. One asset has survived each and every event. Precious metals - gold and silver. 'Smart money' is starting to pile into it in 2016. It's feeling close.

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Sun Jun 12, 2016

Brexit, EU Collapse and Gold

In 10 days the UK votes on staying in or leaving the EU. We reported on this earlier this month but things have escalated since. Polls appear to show a clear lead for the leave case ("Brexit") and, given a lot of the sentiment driving it is immigration based, last night's massacre in the US may well see a groundswell in that regard. However, it is not simply control on immigration that is driving the Brexit movement, but an exit from the very clear signs of financial and political distress in the EU experiment.

Staying in the EU sees the UK tied to a system where there are countries and major banks on the edge of financial collapse. This goes way beyond the basket case, but relatively small, and yet to be 'fixed' Greek problem. Italy, the 3rd biggest economy, has a major systemic financial problem being kept at bay by EU intervention; the European Central Bank (ECB), having bought huge swathes of sovereign debt to print money is now buying corporate debt at a staggering rate in their $1.2 trillion QE program; and European banks, across the board, are crashing, with the last 2 weeks seeing the biggest drop in European bank shares since the Euro crisis of 2012. There is also clear infighting with both the German Finance Minister and Europe's biggest bank Deutsche Bank objecting to the extent of monetary stimulus from the ECB as it desperately tries to breathe life into a dying economy. This from Deutsche Bank late last week:

"ECB policy is threatening the European project as a whole for the sake of short-term financial stability,"

George Soros, who last week dramatically increased exposure of his $30 billion fund into gold had this to say:

"If Britain leaves, it could unleash a general exodus, and the disintegration of the European Union will become practically unavoidable,"

And it's not just financial elites such as Soros. Retail demand for gold in London too has surged. According to the CEO of leading bullion dealer Sharps Pixley:

"It seems to have sunk into people's consciousness that Brexit is a real possibility now. All stocks are being bought out in advance of even being shipped,"

As we discussed in Friday's Weekly Wrap Podcast, it should be no surprise that some of the biggest backers of the "Bremain" camp are the big banks. They have a lot at stake. We often talk about a global financial system artificially inflated beyond fundamentals with debt accumulating monetary stimulus. It is a global financial house of cards. The EU, collectively, is the world's 2rd biggest economy putting it at the bottom of that house of cards. You know what happens to the rest then….


Image

User avatar
AinslieBullion
Posts: 327
Joined: Tue Oct 20, 2015
Location: Brisbane, Queensland, Australia.
Contact:

Re: Ainslie Bullion - Daily news, Weekly Radio and Discussio

Postby AinslieBullion » Mon Jun 13, 2016

Paul Singer Says Buy Gold, Warns of Crash

Fortune magazine described billionaire hedge fund manager Paul Singer as one of the "smartest and toughest money managers" in the hedge fund industry. You don’t amass $2.1 billion in personal wealth as a dill.

Over the weekend Paul Singer joined the chorus of billionaires of late (like Soros, Icahn and Druckenmiller) warning of a financial crisis, going short shares and buying gold. Here’s a bit of what he had to say:

On central bank stimulus such as quantitative easing (printing money), zero and now even negative interest rates:

“It started out as all bond buying, but now it’s leaked into equities. The result of all that — I call it monetary extremism — is that the economies have held up and had some growth, but that growth has been tepid, with the biggest gains going to those who own financial assets while wage growth has been stagnant.”

We’ve written before, and talk often of it in the podcasts, of this enriching the rich at the expense of low and middle class – the inequality effect of monetary stimulus. It is the biggest driver for Trump’s success and it could be a big sleeper in how this all unfolds. Trump being elected for a start…

Singer goes on to say (emphasis ours):

“The cure for the crisis — for the debt crisis, the financial crisis [GFC] — has been deemed by the developed world governments to be more debt. There has not been a deleveraging. And after seven and a half years and counting of this mix of policies, at the moment we’re either in a stage of stagnation or rollover, possibly in the early stages of a global recession. So I think it’s a very dangerous time in the financial markets.”

And on investment?

“We’re very bullish on gold, which is the anti–paper money, of course, and is under owned by investors around the world. And we are very sceptical about markets. We hedge every equity position. We’re not in the mood to be surprised — surprised in the sense of losing large amounts of money — ever, but in particular now with this extraordinary and unprecedented situation where the stability of financial markets is so dependent on confidence in policy makers and central bankers.”


Return to “Friends of BullionStacker”

Who is online

Users browsing this forum: Yahoo [Bot] and 5 guests