Tag: Schiff Gold

More Evidence the US Dollar is Dying?

          The move away from the US Dollar around the globe continues to accelerate, as confirmed by a brief review of the headlines from the past week.

          This is from Michael Maharrey (Source:   https://schiffgold.com/key-gold-news/china-brazil-trade-deal-ditches-the-dollar/): 

More bad news for the dollar.

Last week, China and Brazil announced a trade deal in their own currencies, completely bypassing the dollar.

This represents another small shift away from dollar dominance.

Under the new deal, Brazil and China will carry out trade directly exchanging yuan for reais and vice versa instead of first converting to dollars.

In a statement, the Brazilian Trade and Investment Promotion Agency (ApexBrasil) said the agreement would “reduce costs” and ” promote even greater bilateral trade and facilitate investment.”

Brazil ranks as the largest Latin American economy, and China is its biggest trade partner. Trade between China and Brazil amounts to some $150 billion per year. China overtook the US as Brazil’s number-one trading partner in 2009.

China also has dollarless trade agreements with Russia, Pakistan and Saudi Arabia.

This is the latest blow to dollar hegemony. Earlier this year, Saudi Arabia Finance Minister Mohammed Al-Jadaan said the country is open to discussing trade in currencies other than the US dollar. This could mark the beginning of the end of petrodollar exclusivity. And in March, Reuters reported that recent oil deals between India and Russia have been settled in currencies other than dollars.

We are still a long way from the dollar losing its status as the world reserve currency, but its dominance is clearly eroding.

          And this from Matthew Piepenberg (Source:  https://goldswitzerland.com/golden-question-is-the-petrodollar-the-next-thing-to-break/)

As I’ve presented elsewhere, history (borrowing from Mark Twain) may not repeat itself, but it certainly rhymes.

And toward this end, Rutherglen and Gromen have shown the poetry of rhyming patterns in the context of the ever-changing petrodollar politics, which, modestly, we too foresaw over a year ago.

As we warned from literally day-1 of the western sanctions against Putin, the end result would be disastrous for the West in general and the USD in particular.

And nowhere was this US Dollar prognosis truer than with regard to the petrodollar—i.e., those good ol’ days when nearly every oil purchase was linked to the USD.

However, and as Gromen and Rutherglen suggest, that oil-USD linkage was never a sure thing in the 70’s, and will be even less of a sure thing in the years ahead.

And this, folks, will have a massive impact on gold in the years ahead.

How so?

Let’s dig in.

Although still in diapers when Nixon closed the gold window in 71, and still watching Saturday morning cartoons when gold soared from $175/ounce in 1975 to over $800/ounce less than five years later…

… I am at least old enough now to glean a few historical lessons and patterns which may point toward similar and rising gold valuations tomorrow.

Gold, as Gromen and Rutherglen remind, was ripping in the late 70’s largely because it was not yet a foregone conclusion that oil would be pegged to USDs.

In that bygone era of disco, ABBA, wide neckties and checkered suits, neither OPEC nor Europe was against the idea of settling oil transactions in gold rather than USTs.

This was because those very same USTs (thanks to Nixon’s welch) were not very well…loved, trusted or valued in the 70’s.

(See where I’m going [rhyming] with this?)

Fortunately, Paul Volcker was able to seduce the oil nations into trusting Uncle Sam’s fiat money by cranking (and I do mean cranking) interest rates to the moon to restore faith in the UST and hence give OPEC the confidence to sell oil in dollars rather than settle in gold.

Specifically, Volcker took rates to 15+%, a move which placed real rates on that all-important 10Y UST at +8%.

Such hawkish policy was thus a game changer for making the petrodollar a reality and hence the USD the world’s reserve energy asset (and bully) for a generation to come.

Unfortunately, and thanks to Uncle Sam’s embarrassing bar tab (i.e., debt levels), those days, and those USDs and USTs, have fallen from grace, and hence are slowly falling off the radar of OPEC.

For this, we can also thank an openly cornered Powell’s so-called war on inflation, which has, among so many other backfired fiascos, led to a slow and steady process of de-dollarization and declining faith in that oh-so-important global IOU, otherwise known as the UST.

The Oil Nations Aren’t Stupid

The OPEC folks know that Uncle Sam’s IOU’s aren’t what they used to be.

Unlike Volcker, however, Powell can’t get the 10Y UST to an 8% real (i.e., inflation-adjusted) rate.

Even his so-called “hawkish” nominal rates of 5% have crushed credit markets, Treasuries and nearly everything else in its path.

 And if Powell even dreamed of pushing rates to 15%, ala Volcker to seduce OPEC, he would literally murder the entire US economy with a double-digit rate hike against a $31T public debt pile.

In short, there is simply no way to compare Volcker’s options in the 70’s to Powell’s debt reality in 2023.

This means the Fed can’t do what will be needed this time around to prevent OPEC from looking outside the USD or UST and hence inside the gold markets as a primary asset to settle its energy transactions.

The days of the mighty petrodollar, as I warned (in two languages) over a year ago here, here, and here, are slowly but steadily coming to an end.

Think about that for a second.

Or better yet, look at it for a second—with kudos again to Gromen and Rutherglen.

          Piepenberg makes the same argument that I have been making – the Fed will HAVE to pivot.  It’s either that or destroy the economy.  I make this statement understanding that there are some very bright analysts who disagree.

          But, the emerging economic and geo-political conditions indicate that there can be no other outcome in my view.

            If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com.  Our webinars, podcasts, and newsletters can be found there.

An Artificial Economy

          The March “You May Not Know Report” discusses how the current economy (since the time of the Great Financial Crisis) is artificial- the result of easy money policies by the Federal Reserve and government stimulus.

          History teaches us that when governments overspend and central banks over print, eventually, reality sets in.  One of the founding fathers, Thomas Jefferson, told us that we could expect inflation followed by deflation and that is exactly the track on which we now find ourselves.

          Inflation has not subsided; the most recent data shows that inflation is accelerating exactly as Jefferson suggested it would.  And Americans are suffering as a result.  There are now also signs of deflation setting in as well.  This from Michael Maharrey writing for Schiff Gold (Source:  https://schiffgold.com/commentaries/this-strong-economy-is-a-facade-built-out-of-debt/):

Retail sales surged in January, creating the impression that the economy is humming along nicely. After all, there can’t be a problem if consumers are out there consuming, right?

But a lot of people are ignoring a key question: how are people paying for this shopping spree?

As it turns out, they’re putting a lot of this spending on credit cards.

Even with a big 1.8% decline in retail sales in December, revolving credit, primarily reflecting credit card debt, grew by another $7.2 billion that month, a 7.3% increase.

To put the numbers into perspective, the annual increase in 2019, prior to the pandemic, was 3.6%. It’s pretty clear that Americans are still heavily relying on credit cards to make ends meet.

Meanwhile, household debt rose by $394 billion in the fourth quarter of 2022. It was the largest quarter-on-quarter increase in household debt in two decades.

Debt balances have risen $2.7 trillion higher than they were at the beginning of the pandemic.

Clearly, this isn’t a sign of a healthy economy. Americans are spending more on everything thanks to rampant price inflation that doesn’t appear to be waning, and they’re relying on credit cards to do it. Saving has plunged. This isn’t a sound economic foundation, and it isn’t even sustainable. Credit cards have a nasty thing called a limit. And with credit card interest rates at record-high levels, people will reach those limits pretty quickly.

I ran across something the other day that provides an even more striking example of just how reliant the US economy is on debt.

A company called the Wisconsin Cheeseman sells gift packs of cheese, candies and other treats. And you can buy the gifts on their in-house credit plan.

Let this sink in for a moment. A primary pitch from a gift company is that you can buy on credit.

The annual percentage rate will run you a modest 5.75% to a hefty 25.99% depending on the state. (Most states are currently above 20%. But don’t worry. Your payments can be as low as $10 a month.) Just don’t think about the fact that you’ll probably be paying for this cheese for years to come.

There are other companies facilitating borrowing this doesn’t even show up in the official debt figures.

The use of BNLP services such as Affirm, Afterpay and Klarna has exploded in the last couple of years. These services allow consumers to pay off purchases through installment payments, often interest-free. In a December 2021 report, Cardify CEO Derrick Fung said buy now, pay later has rapidly become more mainstream.

“The consumer over the last 12 months has become more compulsive and BNPL products are the result of us being locked up for too long and wanting more instant gratification,” he said.

Buy now, pay later is a convenient way to spread out spending, but there is a dark side. It encourages consumers to spend more. Nearly 46% of those polled said they would spend less if BNPL wasn’t an option.

The rise of buy now pay later (BNPL) is another sign of a deeply dysfunctional economy. Americans are piling up millions of dollars of additional debt using BNPL on top of their credit cards.

So, while the mainstream pundits tell you the economy is strong, they are looking at a facade. It’s a house of cards. And eventually, it will collapse.

American consumers continue to “support the economy” by spending money today despite rising prices. But they’re borrowing to do it. Tomorrow is fast approaching. And with it depleted savings, higher interest rates, and looming credit card limits. This is simply not a sustainable trajectory, no matter how the mainstream press tries to spin it.

            Consumers are struggling.  That means that the deflation part of the cycle that Jefferson warned us about may be about to emerge in earnest.

          As I have stated in the past (and there are many analysts who would disagree with me), I expect that the Federal Reserve will reverse course and begin pursuing easy money policies once again.

          Should I be right about this, we will have to wait and see if the Fed can be effective.  I have my doubts.  Consumers are accumulating too much debt.

          The chart below breaks down debt accumulation by age.  Alarmingly, those age 60 plus are accumulating more debt on a percentage basis than other age groups.  That should serve as a huge red flag and warning sign.

          This time will be no different.

          Deflation will, at some point, become the prevalent economic force.

          That will be more bad news for stocks and real estate.

          Stocks are already feeling it, and real estate is now beginning to dramatically unwind in many parts of the country.

          The best advice that I can offer is to have some of your assets that will be protected from a prolonged decline in stocks and real estate and other assets that will perform well in an inflationary environment.

            If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com.  Our webinars, podcasts, and newsletters can be found there.

Recession Imminent?

            US Treasuries rallied slightly last week as stocks, and precious metals fell.

            Since the beginning of 2022, I have been commenting that I believed the US economy was in recession.  As many of you know, after economic data is initially reported, it is often revised multiple times.

            This time is no exception to the revision rule.  This from CNN (Source: https://www.cnn.com/2022/06/29/economy/gdp-first-quarter-final/index.html):

The US economy shrank at a slightly faster rate than previously estimated during the first quarter, the Bureau of Economic Analysis said Wednesday.

With one quarter of negative economic growth in the books, the data adds to fears that a recession may be looming.

Real gross domestic product declined at an annualized rate of 1.6% from January to March, according to the BEA’s third and final revisions for the quarter.

Previously, the advance estimate released in April showed a contraction of 1.4%. Last month, that was revised to a decrease of 1.5%.

          The Atlanta Fed just reported (Source:  https://menafn.com/1104470550/GDP-of-Atlanta-Fed-shows-that-US-economy-already-in-recession) that the estimated growth for the second quarter will also be negative:

The United States economy is already in a recession, according to data from the Federal Reserve Bank of Atlanta’s gross domestic product (GDP) model released on Friday.

In a declaration, Atlanta Fed stated that “the GDPNow model estimate for real GDP growth, seasonally adjusted annual rate, in the second quarter of 2022 is -2.1 percent on July 1, down from -1.0 percent on June 30.”

The number is lower than the 0.3 percent growth anticipated announced on June 27; the next report will be issued on July 7, it was added. On the other hand, Real gross private domestic investment growth decreased to -15.2 percent from -13.2 percent, according to the bank, whereas real personal usage expenditures growth fell to 0.8 percent from 1.7 percent.

According to the Commerce Department’s third and final reading on Wednesday, the sharp decrease in data suggests that the largest economy in the world, which shrunk by 1.6 percent in the first quarter of the current year, may see a contraction in the months of April and June of the current year.          

          In another sign the economy is slowing, Amazon, the giant online retailer, announced the company is canceling or delaying plans to build 16 more warehouses this year.  (Source: https://www.zerohedge.com/markets/amazon-cancels-or-delays-plans-least-16-warehouses-year)

After spending billions doubling the size of its fulfillment network during the pandemic, Amazon finds itself in a perilous position.

In the first quarter of 2022, the e-commerce giant reported a $3.8 billion net loss after raking in an $8.1 billion profit in Q1 2021. That includes $6 billion in added costs — the bulk of which can be traced back to that same fulfillment network.

Amazon CFO Brian Olsavsky said the company chose to expand its warehouse network based on “the high end of a very volatile demand outlook.” So far this year, though, it has shut down or delayed plans for at least 16 scheduled facilities.

“We currently have some excess capacity in the network that we need to grow into,” Olsavsky told investors on Amazon’s Q1 2022 earnings call. “So, we’ve brought down our build expectations. Note again that many of the build decisions were made 18 to 24 months ago, so there are limitations on what we can adjust midyear.”

          There are only politicians and members of the Federal Reserve Board who are suggesting that we will not see a recession based on the research that I have done.  If history teaches us anything about the prognostications of politicians and policymakers it is that these are attempts to control or direct the narrative rather than being legitimate forecasts.

          This from New York Federal Reserve Bank President John Williams (Source:  https://www.cnbc.com/2022/06/28/new-york-fed-president-john-williams-says-a-us-recession-is-not-his-base-case.html):

New York Federal Reserve President John Williams said Tuesday he expects the U.S. economy to avoid recession even as he sees the need for significantly higher interest rates to control inflation.

“A recession is not my base case right now,” Williams told CNBC’s Steve Liesman during a live “Squawk Box” interview. “I think the economy is strong. Clearly, financial conditions have tightened and I’m expecting growth to slow this year quite a bit relative to what we had last year.”

Quantifying that, he said he could see gross domestic product gains reduced to about 1% to 1.5% for the year, a far cry from the 5.7% in 2021 that was the fastest pace since 1984.

“But that’s not a recession,” Williams noted. “It’s a slowdown that we need to see in the economy to really reduce the inflationary pressures that we have and bring inflation down.”

The most commonly followed inflation indicator shows prices increased 8.6% from a year ago in May, the highest level since 1981. A measure the Fed prefers runs lower, but is still well above the central bank’s 2% target.

In response, the Fed has enacted three interest rate increases this year totaling about 1.5 percentage points. Recent projections from the rate-setting Federal Open Market Committee indicate that more are on the way.

Williams said it’s likely that the federal funds rate, which banks charge each other for overnight borrowing but which sets a benchmark for many consumer debt instruments, could rise to 3%-3.5% from its current target range of 1.5%-1.75%.

He said “we’re far from where we need to be” on rates.

“My own baseline projection is we do need to get into somewhat restrictive territory next year given the high inflation, the need to bring inflation down and really to achieve our goals,” Williams said. “But that projection is about a year from now. Of course, we need to be data dependent.”

          While some may think that Mr. Williams’ forecast of a soft economic landing, getting inflation subdued while avoiding recession, is possible, I am not among them.  Particularly when the current ‘data’ being published by the Atlanta Fed squarely contradicts Mr. Williams’ statements.

          Bottom line as far as I’m concerned is that the Fed will ultimately reverse course and once again engage in easing to try to prop up the economy.  Of course, such action will be at the expense of the US Dollar.  And consumer prices.

          This perspective from Schiff Gold (Source:  https://schiffgold.com/commentaries/rick-rule-fed-will-chicken-out-on-inflation-fight/):

            Well-known investment advisor Rick Rule said the Fed will chicken out on its inflation fight.

            Rule runs Rule Investment Media and formerly served as the president and CEO of Sprott US Holdings Inc. In a recent interview, Rule said that the Fed could get inflation under control with significantly tighter monetary policy for a sustained period of time. But he said he doesn’t think the central bank has the wherewithal to follow through when the economy starts to crash.

I think they’ll chicken out. If we had a period of real interest rates it would certainly cure inflation, but it wouldn’t cure inflation until it did amazing damage to various balance sheets.”

            Rule has warned that the Fed won’t have the fortitude to fight inflation before. In an interview with MoneyWise earlier this year, he said, “I do not believe that the broad equities market will handle multiple rate hikes.”

            Inflation has run hot for months. During the June FOMC meeting, the Fed raised interest rates 75 basis points for the first time since 1994.

            Ron Paul has made similar statements, recently noting the Fed rate hikes have only raised rates to the level they were before the pandemic.

The Federal Reserve cannot increase rates to anywhere near the level they would be in a free market because doing so would increase interest payments to unsustainable levels for debt-ridden consumers, businesses, and the federal government.”

            Jerome Powell continues to insist that the central bank can tame inflation while bringing the economy to a “soft landing,” but this promise seems dubious at best.

            As noted, I expect the Fed to reverse course in the near future and once again pursue easy money policies.

If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com.  Our webinars, podcasts, and newsletters can be found there.