What 2000, 2008 and 2015 May Have In Common

'As a dog returns to its vomit, so the fool repeats their folly.'

Proverbs 26:11

 

And they do it about every seven or eight years, it seems, in the modern economic discipline of bubblenometry.

 

What hath the Fed wrought, and the crony accomplices to Wall Street in the Administration and Congress?

Back to the brink, again.  Crouching dangers, hidden risks.

 

Margin Debt as a percent of GDP is flashing a warning sign as shown in the first chart from Cross-Currents.net.

And the second chart shows that a second indicator could be seen in the stock market performance for the first three days of trading in January, in a chart from Kimblechartingsolutions.com.

 

As the upper left corner of the second chart reminds us, these 'predictions' are forecasts, with a nod to life's school of probability. 

 

I will like to see what happens for the full month of January for a confirmation, before we start warming up the bear train for a trip downtown.   And let's not forget the bubble-making propensities of the keepers of the world's reserve currency, in the age of weaponized finance.   Triumphant exceptionalism does not wear a pauper's rags well, although it is perfectly acceptable dress for the trickle down underclass.

 

This will likely end badly, but timing is always problematic since these breakdowns most often involve a trigger event, or a black swan.  But the system is hardly robust, and so the risks are high.

 

But all in all, as George Takei would say, Oh my.

 

Related:   Margin Debt To GDP Highest in 85 Years

NAV Premiums of Certain Precious Metal Trusts and Funds - Another 30,000 Gold Ounces Redeemed

Sprott Physical Gold Trust saw about 30,000 ounces of gold bullion redeeming, with a commensurate elimination of unit shares in the exchange.  That makes it about 66,680 ounces, or 2 tonnes, redeemed at these prices since December 1, 2014.  

 

The withdrawal from Sprott Gold Trust is an indication of the mispricing of gold bullion and the tightness and leverage behind the scenes in the physical gold market.

The Sprott Physical Silver Trust's cash levels have fallen below one million. There is going to be a secondary offering to bulk up those cash levels some time this year.

While the spike in gold and silver prices today were enjoyable for those who are bullish on the metals, these sharps rises and drops are symptomatic of the highly leveraged paper pricing that is called the Comex.

And one's mind goes back to the last high, which was ruthlessly driven down by equally baseless, paper selling.

There is a Non-Farm Payrolls Report on Friday. Let's see what happens with this.

 

Gold Daily and Silver Weekly Charts - Flight to Safety

It could be hard to see the action in gold and silver today as anything but a 'flight to safety' as people with leveraged stock positions were unwinding them and seeking safety in Treasuries and precious metals.

There will be a Non-Farm Payrolls report on Friday.

Gold has moved to a key resistance point, and its moves for the rest of the week will carry some importance. I shaved my downside stock bets towards the close, and am holding gold but no silver at this time. I lightened up the gold position a little as well, losing from of the positions I had taken on the recent lows.

Gold needs to break this downtrend. It is obvious on the charts. Everything else is just longer term news, but short term noise.

China continues to execute an economic strategy in adding to its gold bullion, with 2014 being a 2000+ tonnes year for them. Where they are exactly going with this is not known for sure, but to just ignore it is most likely a serious error.

 

Nothing of note occurred in the Comex warehouse or delivery reports.

 

I have become more aware of a movement on the economic right to promote their particular brand of the economic philosophy known as Modern Monetary Theory (MMT). 

 

Apparently the game plan is to use take on that 'new era' idea that suggests that income taxes are no longer required.   Therefore we should see either an elimination of the income tax, or a big reduction in the direct taxing structure back to a small flat tax, and perhaps a consumption tax, pushed by some lobbyists and individuals in the GOP Congress.  

 

The US would just print what they needed, as determined in the budgeting process.

 

However, if the currency should ever get into valuation trouble, which theory suggests not, but reality suggests it will, then we would see a big push to cut discretionary spending to 'save the currency.'  And after all, who would not wish to rise to the occasion and 'save the Dollar?'

 

Remember the meme that 'Reagan proved that deficits don't matter?'  And how quickly that notion was discarded when the deficits could be attributed to spending that didn't line the one percent's pockets through deficit spending on pre-emptive wars?  And how hard they and their academic friends pushed the theory that 'efficient markets' needed little or no regulation? These jokers have no shame.

 

What makes anyone think that stimulus or financial innovation, even of the dodgiest new era type, would not be as abused as anything else in this age of yawning inequality in money and power?

 

More laws, financial innovations, and all the bells and whistles and magical thinking that our leadership can conjure up will not suffice to replace the important first step that faces us:  meaningful political and financial reform.  And unfortunately there is no will to do this yet, and the credibility trap remains a significant obstacle for both parties and many of the thought leaders in finance and economics.  

 

And so we must protect ourselves accordingly. 

Have a pleasant evening.

 

 

 

 

SP 500 and NDX Futures Daily Charts - How Low Can We Go

“I think they may not have felt comfortable with somebody who was not in one way or another owned by the industry.”

Joe Stiglitz, on being excluded from SEC Advisory Panel on Trading

Stocks continued to fall lower, testing some important resistant levels as the year end paint continues to peel off the tape.

The big tickle today was the fear of an economic contagion in Europe if Greece leaves the Euro, shocking the Eurozone banks with follow on effects in the US.

The continuing drop in oil prices also are shaking up the financial markets, as oil dropped below the $50 level for the first time in years.

Oil is falling from a perfect storm of slack demand because of the global economic slump, a supply glut due in large part to a market share war led by Saudi Arabia and political sanctions against Russia, and the unwinding of leveraged speculative positions in the oil sector.

There was little in the way of actual economic news today, more coming for the rest of the week including a Non-Farm Payrolls report.

I peeled off some of my downside stock bets towards the close. I also took a very small initial position in oil towards the close which may not last, depending on what I see for the rest of the week.

For the stock market as goes January, so goes the rest of the year. But as I previously noted, I tend to discount the positioning antics in the first week, which is often a carryover of antics from the year end.

Have a pleasant evening.