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Bonds & Interest Rates

Central Banks Made Govt Debt the Riskiest Debt of All Time

Posted by Martin Armstrong - Armstrong Economics

on Tuesday, 21 June 2016 14:57

The central banks have risked it all and lost. They have reached the point of no return. The Fed decided not to raise rates, which are desperately needed to prevent a collapse in pensions and insurance companies, and merely froze like a deer in headlights. The superficial analysts who think lower rates are good for the stock market are blinded by their own stupidity. The theory that low rates will encourage people to buy stocks is brain-dead and demonstrates that these people are incapable of comprehending how the economy functions.

We have taken simple correlations of interest rates and the stock market and discovered something in plain sight. The market has NEVER peaked with the same level of interest rates in history. WHY? It is not the empirical level of interest rates that matters, rather it is the rate of interest that is a factor of expected inflation. Therefore, if the expectation of gain is greater than the rate of interest, there is profit in borrowing. If the expectation is below the rate of interest, then the rate must decline. Consequently, assuming that simply raising or lowering rates will reverse the trend is primitive and lacks any analysis whatsoever.

The central banks have gone way too far and are now trapped. They do not have the ability to influence the economy anymore for they are loaded with government debt that will default. They have converted government bonds into one of the riskiest asset classes of all time.

More and more of our institutional clients (pensions & insurance) are bailing out of government bonds and switching to corporate. Why? No major corporate debt becomes worthless. One was audited by S&P and they remarked that they were taking on more risk. They conducted their own studies to verify what we have been saying and found no corporate defaults, but countless government defaults and partial defaults. In the few rare cases of a default, you receive a payout after liquidation. In the case of government debt, you have something to frame and that is all. Government debt is unsecured and since they have the guns and the armies, you cannot force them to pay anything.

Some insurance companies have come out and stated publicly that they are selling government debt and moving to corporate. Swiss Re AG moved more of its investments into corporate debt as conceded by its chief investment officer who said, “If you’re looking for a bubble, here you go…With government bonds, you’re not adequately compensated for the risk you’re taking.”

We have been in meetings with pension funds. Here too, we find the same response. They are starting to shift. Government debt has become a time bomb. A simple 1% rate hike will be devastating to bond values and blow the budgets of government sky-high.

The European Central Bank has created a total mess of the European banking system. Negative interest rates have been devastating. Now in the Middle East, the National Bank of Abu Dhabi and First Gulf Bank PJSC are exploring a potential merger to create the largest lender in the Middle East. But forget the fluff — banks do not merge unless there is a problem. Rumors behind the curtain say First Gulf Bank PJSC is in trouble.

Negative interest rates have destroyed much of the economy. The rise in regulations and taxes have combined to create the weakest recovery in the United States post-Great Depression. This is not going to end nicely. It is only a matter of time before the general public begins to see the real crisis, and then everything will explode in their faces.

Commercial Traders Have Just Gone Over the Top

Posted by Michael Ballanger - Streetwise Reports

on Tuesday, 21 June 2016 14:17

Precious metals expert Michael Ballanger examines Friday’s COT report and discusses its implication for investors.

With Friday’s Commitment of Traders Report, the ridiculous has just metastasized into the sublime as the Commercial Cretins have just gone “over the top” and added another 5.4M “ounces” to their synthetic gold short position. At 298,077 contracts declared short, they are now carrying the largest short position in Crimex history. The scary part is that these figures don’t include the big rise in open interest yesterday and you just KNOW that it ballooned out due to more Cartel shorting.

While these numbers are synonymous with prior tops like in 2008 and 2011, the difference today lies in two realities: 1) The Shanghai Gold Exchange is keeping the Crimex and LBMA (London Bullion Market Association) thieves at bay through some voracious arbitrage, and 2) Raw demand from the Far East and from Western investment pools are keeping inventories tight. If this was back in 2011–2015, the market would be limit down on Monday as the criminals have their way with us. However, this is a NEW bull market and dips are to be bought while holding onto your core position for dear life as I have been trying to do with my GDXJ (Market Vectors Junior Gold Miners ETF) position. I can’t tell you how many times I have had to lock myself in the wine cellar during trading hours because the temptation to “SELL!” was so overwhelming.

The tape action yesterday was a perfect example of a textbook “sell signal” with a double top, an outside reversal and a key reversal all being lumped into one butt-ugly trading session. However, as I have written about for ages now, technical analysis rarely works at major turns in gold, and as one prominent gold guru lamented this morning: “No one would have predicted a near $40 reversal when gold was at $1,318 at 10:30 a.m. EDT!” That’s because the technical picture was letter perfect having been created—no, GROOMED—by the bullion bank trading desks with every intention of trapping in the big algobot-run funds that were chasing momentum and the technical funds that were “buying the breakout.”

So if you are getting PAID to provide people with half-assed, quasi-decent “advice,” what do you say to the poor sad-sack soul who studies technical analysis and takes countless online courses on candlestick analysis? I’ll tell you what you say—go get a refund for all of those courses because when markets are this rigged, it is useless. To prove my point, had that reversal yesterday been in copper or Proctor and Gamble stock or the Australian dollar, I would have been short going into yesterday’s close. Because it was gold (and/or silver), I refrained from acting because the right thing to do in markets this phony is the opposite of what conventional “analysis” would command. Result? Up $20 and back over $1,300. Voila!

The bullion banksters and their well-armed trading desks pulled off a wondrous reversal, but have now arrived into somewhat of a “pickle” in that the movie reel that they thought would play out with the bad guys winning and gold following through to the downside on what should have been another Freaky Friday where gold and silver get clobbered. Since it DIDN’T, they now have to await selling from the Asian markets in order to give them the slightest chance of a downside flush this coming week.

What IS a certainty is that the PMs are trading in a totally bizarre fashion, and anyone who fails to pay attention to Commercials are indeed paying no attention to “that man behind the curtain” who most certainly is pulling levers and spinning dials frantically in order to secure the desired effect while being short nearly 30 Moz of phony, synthetic gold that closed within a whisker of a new closing high for the move. There must be carloads of Pepto and adult diapers being handed out to the Cretins as the wait in agony for the Sunday night opening.

The central banks are now in deep credibility “trouble” due to the fact that not one shred of the $57 trillion spent bailing out the global banking industry has served to improve the lot and lifestyle of the middle class. Prices are spiralling northward everywhere including food and housing and services, while the policy-makers are reacting with the highly deflationary “NIRP” (negative interest rate policy) that now exists for 16% of all issued bonds in Europe and appears to be coming to a U.S. bond market close to you. These “great and powerful” central bankers are now rarely able to move markets with a single sound bite, and when they are able, it is usually to the downside. The fact that Yellen & Co. were unable to convince the bond market that growth was “robust” is a sign that the era of central bank domination is beginning to fade.

This coming week is going to be a very volatile week with all of the shenanigans going on in Europe and the vote in the U.K. Maintaining a core position in the miners amidst all of this volatility is painfully difficult if you allow yourself to get mesmerized by the short-term noise, but I find that spending a few bob on hedges is well worth it, as I’ve done with my big GDXJ position. The astounding thing that I rarely write about is the seven-week performance of the 357 Magnum Portfolio now sporting a 45% advance largely due to the incredible move in Iconic Minerals (ICM.V) which closed at $0.41 up 105% since it was added at $0.20 in late April. I helped with the recent $0.20 financing so insofar as that should constitute a disclaimer of sorts, let it be known.

related:be sure to read the excellent Clive Maund’s Gold Market Update

Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger’s adherence to the concept of “Hard Assets” allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.

Disclosure:
1) The following companies mentioned in the interview are sponsors/billboard advertisers/special situations clients of Streetwise Reports: None. The companies mentioned in this article were not involved in any aspect of the interview preparation or post-interview editing so the expert could write independently about the sector. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
2) Michael Ballanger: I or my family own shares of the following companies mentioned in this article: None. I personally am or my family is paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: Iconic Minerals. I determined which companies would be included in this article based on my research and understanding of the sector. Statement and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
3) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
4) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

All charts courtesy of Michael Ballanger

What Brexit Is All About: Taxation (and Regulation) Without Representation

Posted by Frank Holmes - US Global Investors

on Tuesday, 21 June 2016 14:11

I want to continue the Brexit conversation from last week. With only three days left before U.K. voters head to the polls, expectations of which side might win are beginning to shift toward the “Brexiteers,” while betting markets are still putting money on the “stay” campaign. However, the probability of victory for those who favor keeping their European Union membership has weakened rather remarkably in the last month, falling from over 80 percent in mid-May to around 62 percent today, according to BCA Research.

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One of the main grievances is the burden of EU regulations, which are decided by unelected officials in Brussels with little to no cost-benefit analysis. These rules, which regulate everything from the number of hours someone can work (48 hours) to vacuum cleaner power, ultimately stifle growth and innovation.

Consider the so-called FANG stocks—Facebook, Amazon, Netflix and Google. These four tech behemoths, not to mention Apple, rank among the most disruptive, transformative companies the world has ever seen. They also happen to be American. Nothing like them exists in Europe—or, for that matter, anywhere else across the globe.

When’s the last time a major scientific or technological breakthrough was made in France? In Germany? Where’s Europe’s answer to Silicon Valley?

It’s not that these countries lack capable thinkers and entrepreneurs. Far from it. Europe was once at the center of everything, from science to music to business. But now that Piketty-style “envy economics” reign supreme in the EU, innovation has increasingly shifted west toward the U.S.

And it doesn’t end there. EU officials continually try to make demands on how these companies conduct their business, whether that be regulating Amazon and Netflix’s original streaming content or suing Facebook over privacy issues.

These are among the questions and concerns Brexiteers and Eurosceptics are bringing to the fore. And no matter the referendum’s outcome, they’re not likely to go away any time soon. In fact, this could very well be the beginning and should serve as a wakeup call to EU policymakers. Just as American colonists protested taxation without representation over 240 years by dumping an entire shipment of English tea into Boston Harbor, many Brits today are staging their own taxpayers’ revolt by demanding control over their own economy, budgeting, immigration policies and more.

This is more broadly a debate over common law (the U.K.) and civil law (the Continent). Under common law, there’s greater protection of wealth and intellectual property. You’re presumed innocent until proven guilty. Why are real estate prices higher in London, New York City and Hong Kong than in Rome, Paris and Berlin? Common law.

Also at issue is the EU’s immigration and open borders policy, which has brought more than 600,000 asylum seekers into the U.K. in recent years.

I invite you to watch Brexit: The Movie, a Hollywood-caliber documentary that details many of the arguments in favor of the U.K. leaving the EU. When London financial markets were deregulated in the 1980s under Prime Minister Margaret Thatcher, it led to what is known as the “Big Bang,” named for the skyrocketing growth in market activity, and the same could very well happen to the U.K.’s economy post-Brexi.

The High Cost of Indirect Taxation

The U.K.’s EU club membership, so to speak, varies year-to-year, but it averages between 8 and 10 billion pounds—the equivalent of $11 billion and $14 billion—making the kingdom the third largest net contributor after Germany and France. But the costs don’t stop there. Towering above the contribution to the EU’s budget are costs associated with the bloc’s endless regulations—what I refer to as indirect taxation.

According to Open Europe, a nonpartisan European policy think tank, the top 100 most expensive EU regulations set the U.K. back an annual 33.3 billion pounds, equivalent to $49 billion. This amount exceeds what the U.K. Treasury collects in Council Tax (a tax on domestic property) on an annual basis.

And remember, that’s just the top 100. The “acquis communautaire,” the EU’s body of rules, directives and regulations, is a mammoth 170,000 pages long. Among the costliest regulations are the Renewable Energy Strategy (4.7 billion pounds a year), the Working Time Directive (4.2 billion a year) and the EU Climate and Energy Package (3.4 billion a year).

Tim Congdon, a prominent British economist and businessman, shows that such regulations—again, passed by unelected officials, similar to agencies here in the U.S.—have been a significant detriment to EU growth. Writing for the pro-leave group Economists for Brexit, he states: “It is obvious that the economies of EU member states are falling behind those of other high-income countries, falling behind consistently, and by a significant amount. Too much regulation must be the main explanation.”

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Of course, these rules won’t disappear overnight if the U.K. chooses to leave. But it would be a step in the right direction toward repatriating a level of autonomy over the country’s own laws.

In the meantime, investors are bracing for the referendum with gold, which has rallied 7 percent this month, breaking above $1,300 an ounce . The yellow metal has historically been favored as a “safe haven” investment during times of political and economic uncertainty. Read my latest gold commentary on Forbes.

And with interest rates at near-zero or negative levels, droves of European fixed-income investors are abandoning government debt for American municipal bonds. The German 10-year government bond yield fell to subzero levels last week for the first time ever, spurring additional European flight into munis, which still offer attractive yields, relatively low volatility and diversification benefits.

Explore the $3.7 trillion muni market!

Let’s Not Forget to Clean House Here in the U.S.

The EU is hardly the world’s only offender when it comes to passing onerous regulations. The U.S. government continues to add to the already-bloated Federal Registry, which now stands at 80,260 pages as of the end of 2015. That year, federal regulations cost U.S. businesses a staggering $1.885 trillion, or $15,000 per household, according to the Competitiveness Enterprise Institute (CEI). If U.S. regulations were its own economy, in fact, they would be the world’s ninth largest, sandwiched in between India and Russia.

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This is something our next president will have no choice but to address. 2015 was a record year for adding new regulations. We can’t continue going down this path. The problem is that I haven’t seen either Donald Trump or Hillary Clinton make a serious commitment to streamlining rules and laws that affect businesses, especially small to medium-size businesses. According to a 2015 National Small Business Association (NSBA) survey, “regulatory burdens” was near the top of the list of challenges small business owners said threatened growth and the survival of their companies. I’m convinced that the candidate with the strongest economic and deregulatory plan has the best chance at winning the election in November.

For whatever it’s worth, though, a poll in Institutional Investor found that large-scale investors appear to favor Clinton for president right now by a pretty wide margin. When asked if Wall Street will rally behind Trump, a whopping 84 percent said no.

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Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 3/31/2016: Apple Inc.

Diversification does not protect an investor from market risks and does not assure a profit.

Brexit Rules The Week

Drilling Reveals Off-Scale Uranium Discovery

Posted by The Energy Report

on Monday, 20 June 2016 19:09

A newly identified world-class Athabasca basin uranium deposit

Drilling has revealed massive pitchblende near NexGen Energy’s Arrow zone on the Rook 1 property in the Athabasca Basin. Here’s what the analysts have to say.

According to NexGen Energy Ltd. (NXE:TSX.V; NXGEF:OTCQX), drilling in the area 180 meters southwest of Arrow has intersected significant off-scale radioactivity associated with extensive visible uranium mineralization. The company plans to conduct summer drilling to determine if this new area is connected to the Arrow Zone.

Analyst Rob Chang of Cantor Fitzgerald sees this as big news: “This newly identified area could be a separate mineralized pod from Arrow or an extension that is 180m away from the current known dimensions of what is already a world-class uranium deposit.”

“This newly identified area could be a separate mineralized pod from Arrow or an extension of a world-class uranium deposit.” – Rob Chang, Cantor Fitzgerald

This discovery “could be the first step to what may be a substantial increase in uranium resources at this world-class project,” added Chang.

He is particularly intrigued by the alteration zone 230 meters below surface; its intense dravite-rich hydrothermal breccias are “a strong indicator of high-grade uranium mineralization in the area.” This zone is a target for future drilling.

Colin Healey of Haywood sees these latest drill results as highlighting the potential of the development of a new area, writing, “Today’s results include the strongest radioactivity encountered to date in the new area, and look promising for the potential to add pounds here outside our model.”

According to Healey, two upcoming catalysts are continued results from spring/summer drilling and an updated resource estimate at Arrow that he anticipates will be released in the second half of 2016.

“NexGen is peerless in the Athabasca Basin and globally as an exploration/developer play.” – Colin Healey, Haywood Securities

Haywood believes “NexGen is peerless in the Athabasca Basin and globally as an exploration/developer play, as it controls a large, world-class, high-grade uranium deposit in a proven operating district, with the scale (201.9 Mlb U3O8) to be standalone economic right from the maiden resource.”

Gwen Preston, editor of Resource Maven newsletter, notes the ongoing success of NexGen’s off-the-chart drill results by writing, “Another set of holes, another off-scale result from NexGen’s Arrow project in the Athabasca Basin.” She highlights that “the hit is not a straightforward extension of the high-grade sub-zone,” as the off-scale radioactivity was outside the perimeters of the known resource. “The three good holes included the highest radioactivity from the zone to date and if this area pans out NexGen will look to see if it connects to Arrow.”

The NexGen news flow with continue, as more drilling is planned. “The ramped-up summer program will kick off shortly and will see seven rigs at work at Arrow,” commented Preston.

Disclosure:

1) Patrice Fusillo compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in this article are sponsors of Streetwise Reports: NexGen Energy Ltd. The companies mentioned in this interview were not involved in any aspect of the article preparation so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
4) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons quoted or interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

Expect the worst

Posted by The Economist

on Monday, 20 June 2016 17:51

Fed officials try to understand why they cannot keep raising rates

FOUR times a year the meeting of the Federal Open Market Committee, the Federal Reserve board that sets monetary policy, concludes with a special flourish: a press conference, and the publication of the members’ economic projections. The latter includes a “dot plot” which shows how members think rates will unfold over the next few years. When the new dots were released at the end of the June meeting, on the 15th, it quickly became clear that one was not like the others. FOMC members overwhelmingly see the Fed’s main interest rate rising to between 1% and 2% in 2017, then on to between 2% and 3% in 2018: all of them, that is, except one. That oddball member projected the interest rate would stay right about where it is now over the next two years. When the projections dropped, Fed watchers immediately speculated about just which member had turned super-dovish (or super pessimistic).

Two days later, all was revealed....continue reading HERE

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