This week’s “The Financial Physician” radio show is now available for your listening pleasure.
Make sure you click on the top play button as the center one is disabled.-Lou
This week’s “The Financial Physician” radio show is now available for your listening pleasure.
Make sure you click on the top play button as the center one is disabled.-Lou
The next 6-7 months are going to to wild in so many ways.-Lou
The Dreaded Death Cross Formation Just Hit Stocks
Smart investors have noted that the S&P 500 just staged a very dangerous looking move.
That move was when S&P 500’s 50-week moving average broke below its 100-week moving average. You can see this in the green circle below.
This move is called a “Death Cross” and for good reason. The last time it happened was in 2008, right before the entire market CRASHED.
The time before that was right before the Tech Bubble burst, crashing stocks.
In short, going back over 16 years, this Death Cross formation has only hit TWICE before. Both times were when major bubbles burst and stocks Crashed.
Yea, the gold market is not rigged.-Lou
Gold Plunges After “Someone” Suddenly Decides To Dump Over $2.3 Billion Notional In 10 Minutes
A modest blip higher in the USD…
And commodities suddenly accelerated to the downside, led by precious metals.
While Copper and Crude are giving up gains, gold and silver and being monkey-hammered on heavy volume..
Over 18,000 contracts – or over $2.3 billion notional of gold has been dumped in the last 10 minutes…
“Negative interest rates” have become a phenomenon with economists and the media. But I’m writing to tell you something about negative interest rates you haven’t heard. You certainly won’t hear about it in the mainstream press.
What’s coming at you is a historic event. It’s something our grandchildren will hear stories about, much like the Great Depression or the Cold War. It could send the price of gold much higher in the coming years.
If you know what’s coming, it could mean the difference between having lots of free cash in retirement and barely getting by. And please remember this warning: Social Security will help even less than you think.
To understand the gravity of this moment, let’s cover one of the most bizarre ideas in the world…
In a normal world, your bank pays you interest on your savings. It takes your money, pools it with other people’s money, and loans it out. The bank makes money by paying out less in interest on your deposit than it earns in interest from borrowers. For example, it might pay out 3% to depositors while earning 6% from borrowers. This is how it has worked for decades.
Negative interest rates turn your “normal” bank account upside down. They could only exist in a crazy world where idiot politicians are in control. Unfortunately, that’s just what we’re dealing with right now.
Politicians all over the world are ordering banks to charge depositors (you) a fee for storing cash. It’s a perversion of saving. It’s a perversion of capitalism. It’s a perversion of planning for the future.
And it’s going to result in disaster.
Politicians think that by making it unattractive for you to keep money in the bank, you’ll save less money. Instead, you’ll spend more money on things like smartphones and cars. You’ll invest in things like stocks and real estate. This would “stimulate” the economy.
This thinking is very, very wrong. No matter what the government does, it can’t force you to spend money. It can’t force you to make investments if you don’t see good opportunities. Forcing people to pay banks to hold their money is a tax.
The government and the mainstream press won’t dare call it a tax. But that’s exactly what it is. A negative interest rate policy is a tax. Any time you hear a politician, central banker, or news anchor say “negative interest rates,” just think “TAX.” Think “TAX ON MY CASH.”
Negative interest rates are going to result in financial disaster that will wipe out many people. But you don’t have to be one of them. I’ll explain how you can sidestep this disaster—and even make a lot of money as a result of it—in a moment.
But let’s quickly cover one more thing about negative interest rates…
If the government makes it unattractive for you to keep cash in the bank, you can pull cash out of the bank. You can simply store it in a safe or under the mattress. Politicians know this. That’s why they’ve created another dangerous policy that works hand-in-glove with negative interest rates.
You see, if you pull your money out of the banking system and stuff it under the mattress, you aren’t doing what the government wants you to do. You’re not spending money or investing in stocks. This is a major reason why governments are banning large cash transactions and large denomination bills. They are fighting a War on Cash.
In just the past few years…
And just a little while ago, former U.S. Treasury Secretary Larry Summers called for a ban on the $100 bill! Historians aren’t surprised by Summers’ idea. Franklin Delano Roosevelt banned $500 and $1,000 bills in the 1930s. You can bet that our politicians will do the same thing in a financial emergency.
The financial world has gone mad.-Lou
The Sub-Zero Club: Getting Used to the Upside-Down World Economy
Japanese families seem to have a sudden affinity for home safes. According to the Tokyo-based manufacturer Eiko, shipments have doubled since last fall. And in Germany, insurer Munich Re has stashed some 10 million euros ($11.4 million) worth of its own cash into vaults.
Why the squirreling? One possible reason is the creeping imposition of negative interest rates across the world, which could make it more rewarding to bypass banks—and a safe or vault is, well, more secure than a mattress.
Welcome to the upside-down world of modern monetary policy. In this new reality, borrowers get paid and savers penalized. Almost 500 million people in a quarter of the global economy now live in countries where interest rates measure less than zero. That would’ve been an almost unthinkable phenomenon before the 2008 financial crisis, and one major economies didn’t seriously consider until two years ago, when the European Central Bank first partook in the experiment. Now the ECB and the Bank of Japan are diving deeper into the sub-zero world as they seek more ways to spark inflation.
ECB President Mario Draghi currently charges 0.4 percent on the euros deposited by banks in his coffers overnight. BOJ Governor Haruhiko Kuroda, whose country knows more than most about the perils of soft inflation, knocked his benchmark down to an unprecedented -0.1 percent in January. Their counterparts in Sweden, Switzerland, and Denmark have already been running negative campaigns for a while now. The U.S. Federal Reserve has, so far, remained on the sidelines.
The overall aim, of course, is to spur banks to look elsewhere when lending their cash, preferably to spenders such as companies and consumers, who should also benefit from low borrowing costs in markets. There’s also the hope—especially in Scandinavia and Switzerland—that currencies will fall as investors seek higher returns elsewhere, lifting exports and import costs.
The policy isn’t without risks. Bank profits could be squeezed, money markets may freeze, and consumers could end up with bulging mattresses to avoid paying to keep money in a bank account. The whole effort could wind up leaving inflation even weaker—hence the tiptoe approach to cutting rates.
“I’m skeptical about the efficacy of negative interest rates,” says Barry Eichengreen, professor of economics at University of California at Berkeley. “They increase the cost of doing business for the banks, which find it hard to pass on those costs to borrowers, given the weakness of the economy and hence of loan demand. Weaker bank balance sheets are not ideal from the standpoint of jump-starting growth, to put an understated gloss on the point.”
As I have been advising for many months, you should not have your life savings in any National Bank. When it hits the fan they are all going down. Sorry for lack of posts the last two months, Income Tax Season dominated my time. The blog will be more active going forward.-Lou
The Fed Sends A Frightening Letter To JPMorgan, Corporate Media Yawns
Yesterday the Federal Reserve released a 19-page letter that it and the FDIC had issued to Jamie Dimon, the Chairman and CEO of JPMorgan Chase, on April 12 as a result of its failure to present a credible plan for winding itself down if the bank failed. The letter carried frightening passages and large blocks of redacted material in critical areas, instilling in any careful reader a sense of panic about the U.S. financial system.
A rational observer of Wall Street’s serial hubris might have expected some key segments of this letter to make it into the business press. A mere eight years ago the United States experienced a complete meltdown of its financial system, leading to the worst economic collapse since the Great Depression. President Obama and regulators have been assuring us over these intervening eight years that things are under control as a result of the Dodd-Frank financial reform legislation. But according to the letter the Fed and FDIC issued on April 12 to JPMorgan Chase, the country’s largest bank with over $2 trillion in assets and $51 trillion in notional amounts of derivatives, things are decidedly not under control.
At the top of page 11, the Federal regulators reveal that they have “identified a deficiency” in JPMorgan’s wind-down plan which if not properly addressed could “pose serious adverse effects to the financial stability of the United States.” Why didn’t JPMorgan’s Board of Directors or its legions of lawyers catch this?
It’s important to parse the phrasing of that sentence. The Federal regulators didn’t say JPMorgan could pose a threat to its shareholders or Wall Street or the markets. It said the potential threat was to “the financial stability of the United States.”
That statement should strike fear into even the likes of presidential candidate Hillary Clinton who has been tilting at the shadows in shadow banks while buying into the Paul Krugman nonsense that “Dodd-Frank Financial Reform Is Working” when it comes to the behemoth banks on Wall Street.
How could one bank, even one as big and global as JPMorgan Chase, bring down the whole financial stability of the United States? Because, as the U.S. Treasury’s Office of Financial Research (OFR) has explained in detail and plotted in pictures (see below), five big banks in the U.S. have high contagion risk to each other. Which bank poses the highest contagion risk? JPMorgan Chase.
The OFR study was authored by Meraj Allahrakha, Paul Glasserman, and H. Peyton Young, who found the following:
“…the default of a bank with a higher connectivity index would have a greater impact on the rest of the banking system because its shortfall would spill over onto other financial institutions, creating a cascade that could lead to further defaults. High leverage, measured as the ratio of total assets to Tier 1 capital, tends to be associated with high financial connectivity and many of the largest institutions are high on both dimensions…The larger the bank, the greater the potential spillover if it defaults; the higher its leverage, the more prone it is to default under stress; and the greater its connectivity index, the greater is the share of the default that cascades onto the banking system. The product of these three factors provides an overall measure of the contagion risk that the bank poses for the financial system.”
The Federal Reserve and FDIC are clearly fingering their worry beads over the issue of “liquidity” in the next Wall Street crisis. That obviously has something to do with the fact that the Fed has received scathing rebuke from the public for secretly funneling over $13 trillion in cumulative, below-market-rate loans, often at one-half percent or less, to the big U.S. and foreign banks during the 2007-2010 crisis. The two regulators released background documents yesterday as part of flunking the wind-down plans (living wills) of five major Wall Street banks. (In addition to JPMorgan Chase, plans were rejected at Wells Fargo, Bank of America, State Street and Bank of New York Mellon.) One paragraph in the Resolution Plan Assessment Framework and Firm Determinations (2016) used the word “liquidity” 11 times:
“Firms must be able to reliably estimate and meet their liquidity needs prior to, and in, resolution. In this regard, firms must be able to track and measure their liquidity sources and uses at all material entities under normal and stressed conditions. They must also conduct liquidity stress tests that appropriately capture the effect of stresses and impediments to the movement of funds. Holding liquidity in a manner that allows the firm to quickly respond to demands from stakeholders and counterparties, including regulatory authorities in other jurisdictions and financial market utilities, is critical to the execution of the plan. Maintaining sufficient and appropriately positioned liquidity also allows the subsidiaries to continue to operate while the firm is being resolved. In assessing the firms’ plans with regard to liquidity, the agencies evaluated whether the companies were able to appropriately forecast the size and location of liquidity needed to execute their resolution plans and whether those forecasts were incorporated into the firms’ day-to-day liquidity decision making processes. The agencies also reviewed the current size and positioning of the firms’ liquidity resources to assess their adequacy relative to the estimated liquidity needed in resolution under the firm’s scenario and strategy. Further, the agencies evaluated whether the firms had linked their process for determining when to file for bankruptcy to the estimate of liquidity needed to execute their preferred resolution strategy.”
Apparently, the Federal regulators believe JPMorgan Chase has a problem with the “location,” “size and positioning” of its liquidity under its current plan. The April 12 letter to JPMorgan Chase addressed that issue as follows:
“JPMC does not have an appropriate model and process for estimating and maintaining sufficient liquidity at, or readily available to, material entities in resolution…JPMC’s liquidity profile is vulnerable to adverse actions by third parties.”
The regulators expressed the further view that JPMorgan was placing too much “reliance on funds in foreign entities that may be subject to defensive ring-fencing during a time of financial stress.” The use of the term “ring-fencing” suggests that the regulators fear that foreign jurisdictions might lay claim to the liquidity to protect their own financial counterparty interests or investors.
JPMorgan’s sprawling derivatives portfolio that encompasses $51 trillion notional amount as of December 31, 2015 is also causing angst at the Fed and FDIC. The regulators wanted more granular detail on what would happen if JPMorgan’s counterparties refused to continue doing business with it if rating agencies cut its credit ratings. The regulators asked for a “narrative describing at least one pathway” for winding down the derivatives portfolio, taking into account a number of factors, including “the costs and challenges of obtaining timely consents from counterparties and potential acquirers (step-in banks).” The regulators wanted to see the “losses and liquidity required to support the active wind-down” of the derivatives portfolio “incorporated into estimates of the firm’s resolution capital and liquidity execution needs.”
According to the Office of the Comptroller of the Currency’s (OCC) derivatives report as of December 31, 2015, JPMorgan Chase is only centrally clearing 37 percent of its derivatives while a whopping 63 percent of its derivatives remain in over-the-counter contracts between itself and unnamed counterparties. The Dodd-Frank reform legislation had promised the public that derivatives would all become exchange traded or centrally cleared. Indeed, on March 7 President Obama falsely stated at a press conference that when it comes to derivatives “you have clearinghouses that account for the vast majority of trades taking place.”
And nobody goes to prison……ever. A fine of $5.1 billion is a lot of money, the crimes must have been so egregious and the shareholders pay for the sins of the executives.-Lou
More than 10 years after it spotted cracks in the housing market, Goldman Sachs will pay $5.1 billion for its role in the financial crisis.
The settlement announced Monday with the Justice Department resolves allegations that the bank misled investors about risky mortgage bonds it sold as supposedly safe investments.
In addition to the DOJ, the agreement resolves claims brought by New York Attorney General Eric Schneiderman and other states. New York will get $670 million, with most going to consumer relief such as mortgage assistance and principal forgiveness for underwater loans.
“Today’s settlement is another example of the department’s resolve to hold accountable those whose illegal conduct resulted in the financial crisis of 2008,” Benjamin C. Mizer, head of the Justice Department’s Civil Division, said in a statement.
CEO Lloyd Blankfein’s Goldman is the last of the big US banks to settle with the government over its mortgage misdeeds. Bank of America paid a record $17 billion in 2014, while JPMorgan Chase paid $13 billion the previous year.
Goldman’s settlement comes just days after Wells Fargo paid $1.2 billion to settle mortgage claims, and two months after Morgan Stanley paid $3.2 billion to end a similar probe.
Goldman bought loans from mortgage underwriters such as subprime giant Countrywide Financial and repackaged them as supposedly safe securities — even though it knew many of the underlying loans were lousy, according to a statement of fact released along with the settlement.
“If they only knew,” Goldman’s head of due diligence wrote in a 2006 e-mail.
When the bank’s Mortgage Capital Committee, which is supposed to approve the loans, examined one 2006 package of mortgages, it was taken aback by how defective it was.
“How do we know that we caught everything?” the committee asked, according to the settlement.
The financial crisis of 2016 will must likely start with the failure of Deutsche Bank, German’s largest bank and the fourth largest in Europe. The stock is plunging in an eerily similar pattern as Lehman Brothers in it’s last days. The failure of a systemic too big to fail bank such as DB will set off a cascade of bank failures, first in Europe and, shortly thereafter, in the U.S. Put your seat belts on, the rest of 2016 is going to be one helluva ride.-Lou
I read this letter on my radio show. A listener asked me to post it on the blog. It says all you need to know about the rise of Trump.-Lou
DEAR RNC: AN EVERYDAY AMERICAN WRITES A LETTER TO EXPLAIN THE TRUMP PHENOMENON TO THE WASHINGTON ELITE
We’re sick of politicians. We’re sick of the Democratic Party and the Republican Party
This letter was sent to 100% FED Up! by an anonymous author:
It doesn’t matter who you support for President in 2016. This letter will make you want to stand up and cheer for the 80 year old American who expresses what most of us are feeling right now. Enjoy…
From the time I was able to vote I voted Republican. I am 80 years old, and have a great deal of respect and influence with hundreds of senior ball players who also network with thousands of others around the country.
I received your questionnaire and request for money and strongly agree with every question, as I have since Obama was elected. Unfortunately the one question that was missing is “What have the Republicans done for the American people?” We gave you a majority in the House and Senate, yet you never listened to us. Now you want our money.
You should be more concerned about our votes, not our money. You are the establishment, which means all you want is to save your jobs and line your pockets… Well guess what? “It’s not going to happen” You shake in your boots when I tell you we’re giving our support to TRUMP and he hasn’t asked for a dime.
You might think we are fools because you feel Trump is on a self destruction course, but you need to look beyond Washington and listen to the masses. Nobody has achieved what he has, especially in the liberal state of New York.
You clearly don’t understand why the Trump movement is so strong, so I’d like to share with you an analogy to help explain the Trump phenomenon. By the way, it’s not just the Republicans who feel ignored and disrespected, there are plenty of Democrats and Independents who also feel let down by the Washington elite. You seem to have forgotten about “We The People” and who hired you to represent us.
So here it is, the best analogy I could come up with. Here is the reason so many Americans have boarded the Trump Train, and why you’re pleas to come back to the party who deserted us, is falling on deaf ears:
You’ve been on vacation for two weeks, you come home, and your basement is infested with raccoons. Hundreds of rabid, messy, mean raccoons have overtaken your basement. You want them gone immediately…You call the city and four different exterminators, but nobody could handle the job. There is this one guy however, who guarantees you he will get rid of them, so you hire him. You don’t care if the guy smells, you don’t care if the guy swears, you don’t care how many times he’s been married, you don’t care if he was friends with liberals, you don’t care if he has plumber’s crack…you simply want those raccoons gone! You want your problem fixed! He’s the guy. He’s the best. Period. Here’s why we want Trump: Yes he’s a bit of an ass, yes he’s an egomaniac, but we don’t care. The country is a mess because politicians have become too self-serving. The Republican Party is two-faced & gutless. Illegal aliens have been allowed to invade our nation. We want it all fixed! We don’t care that Trump is crude, we don’t care that he insults people, we don’t care that he had been friendly with Hillary, we don’t care that he has changed positions, we don’t care that he’s been married three times, we don’t care that he fights with Megan Kelly and Rosie O’Donnell, we don’t care that he doesn’t know the name of some Muslim terrorist.
This country is weak, bankrupt, our enemies are making fun of us, we are being invaded by illegal aliens and bringing tens of thousands of Muslim refugees to America, while leaving Christians behind to be persecuted. We are becoming a nation of victims where every Tom, Ricardo and Hasid is part of a special group with special rights, to the point where we don’t even recognize the country we were born and raised in; “AND WE JUST WANT IT FIXED” and Trump is the only guy who seems to understand what the people want.
We’re sick of politicians. We’re sick of the Democratic Party and the Republican Party. We just want this thing fixed. Trump may not be a saint, but he isn’t beholden to lobbyist money and he doesn’t have political correctness restraining him. All we know is that he has been very successful, he’s an excellent negotiator, he has built a lot of things, and he’s also not a politician. He’s definitely not a cowardly politician. When he says he’ll fix it, we believe him because he is too much of an egotist to be proven wrong or looked at and called a liar.
Oh yeah…I forgot…we don’t care if the guy has bad hair either.
We just want those raccoons gone.
Out of your house.
If you are inclined to buy gold or silver you should do it now while you can still get in at a decent price.-Lou
The Last Time Gold ETF Flows Were This Strong, The Fed Was Starting QE
The cracks are starting to appear in the ‘paper’ gold market.
BlackRock’s rather shocking decisision to halt ETF creation due to gold demand (i.e. being unable to source enough physical gold to meet mandated requirements given the inflows) follows the largest gold ETF inflows since Feb 2009 (just as The Fed started QE1 and unleashed trillions of freshly digitized exuberance into the markets).
As BloombergBriefs reports, investor flows into the two largest gold exchange-traded funds topped $5 billion for February.
State Street’s SPDR Gold Shares ETF attracted $4.186 billion for the month and BlackRock’s iShares Gold Trust fund raked in $887 million.
The last time flows were higher the S&P 500 had fallen more than 18 percent for the year and the U.S. Federal Reserve was just three months into its first quantitative easing program to stimulate demand and shore up the financial sector. That was February 2009.
In fact, transparent gold holdings across all instruments has been soaring since the start of 2016.
Given these extremes in demand, and clear signals of discontent with the monetary and fiscal authorities, Casey Research’s Justin Spitttler had some interesting perspectives on what could happen next…
If you’re buying gold right now…the government could be tracking you.
If you’re buying gold, you’re likely not doing it to make money. You’re buying it to make sure you don’t wake up poor one day.
Gold has been used as money for thousands of years because it is easily divisible, easily transportable, has intrinsic value, is durable, and has consistent form around the world. And, as Doug Casey reminds us, it’s a good form of money because governments can’t print it on a whim. You can’t “Bernanke your way” to wealth with gold.
When today’s dramatic central banking experiment blows up, gold will hold its value…unlike paper currencies such as the dollar.
That’s exactly why the government will try to take it from you.
The last time the government confiscated gold was during the Great Depression. In 1933, President Roosevelt outlawed owning most forms of gold. He claimed that people “hoarding” gold were making the Great Depression worse. The penalty for not turning your gold in to the government was a $10,000 fine and 10 years in jail.
Of course, Roosevelt gave his closest supporters notice before issuing the ban. They had time to move their gold to another country. Most folks weren’t that lucky.
This time around, the confiscation will be digital.
Most people own gold through a fund like Sprott Physical Gold Trust (PHYS) or Central Fund of Canada (CEF). The former will give you physical gold in exchange for your shares, once a month, if you own enough shares. The latter won’t give you the physical gold.
Because this gold is owned through a brokerage account, it will be easy for the government to confiscate.
What about physical gold? If you bought it from a dealer and paid with a wire transfer, the banking regulators have plenty of documentation. They’ll likely let you keep the gold. But it will be illegal to trade. If you don’t obey, you’ll be subject to a 99% tax on its value.
But there’s one way to buy gold so the government can’t track you. I’ve been doing it for years. You can do it, too. It’s buying at a locally owned jewelry store. These stores get a few common gold coins in every week. If you know what you’re looking for, it’s a great way to buy gold with cash.
However, the window of opportunity is closing quickly. In fact, I went to buy gold today…and saw this new sign.
It says, “CASH transactions are limited to $6,000 within a 48 hour period.”
$6,000 seems like an arbitrary number. And 48 hours seems even more contrived. This is a sign of the times. Governments are cracking down on cash. They want to know every detail of your financial life. They want to know what you buy and what you sell.
Paper cash is hard to track. So, little by little, governments are getting rid of it. Notice the $500 bill featuring President McKinley to the left of the sign. Years ago, $500 bought you a brand new car. Today, it barely buys a steak dinner for a family of five.
Cash is on its way out of existence. The government stopped issuing $500 bills in 1969. Last week, Harvard professor Larry Summers wrote an article titled “It’s time to kill the $100 bill.” The New York Times published an article arguing the same thing. Their reasoning is, big bills make it easier for criminals to commit crimes. If you’re not a criminal, you shouldn’t have a problem with the government knowing everything you buy and sell.
The $6,000 limit will soon be $1,000. The local jewelry shop is the last place you can buy gold without the government tracking you. Take advantage of it while you can.