Monetary Fiasco

By Doug Noland

Credit Bubble Bulletin: Monetary Fiasco

All great monetary fiascos are forged upon a foundation of misperceptions and flawed premises. There’s always an underlying disturbance in money and Credit masked by supposed new understandings, technologies, capabilities and superior financial apparatus.

During the nineties “New Paradigm” period, exciting new technologies and “globalization” were seen unleashing a productivity and wealth miracle. The Greenspan Fed believed this afforded the economy an accelerated speed limit. With inflation and federal deficits believed conquered, there was little risk associated with low rates and an “asymmetrical” policy approach to support the booming economy and financial markets. The Fed significantly loosened the reins on finance precisely when they needed to be tightened.

The nineties were phenomenal from a financial perspective. Total system Debt about doubled to $25.4 TN. Remarkably, Financial Sector borrowings surged more than 200% to $8.2 TN. Outstanding Agency (GSE) securities ballooned from $1.267 TN to end the decade at $3.916 TN, for growth of 209%. Securities Broker/Dealers (liabilities) jumped 212% to $1.73 TN. “Fed Fund and Repo” expanded 112% to $1.655 TN. Wall Street “Funding Corps” rose 387% to $1.064 TN. Securities Credit surged 414% to $611 billion.

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What Time is it?

By Grey Beard

what time is it? by Grey Beard
Click for PDF file

Is a 13 or 15 Handle Next for Silver?

By Monetary Metals

The price of gold dropped six bucks, and silver seven cents.

Without much price action, let’s look a few other angles to gain some perspective. First, here’s the chart of both silver and the decidedly not-monetary metal copper.

The Prices of Silver and Copper in Gold
letter nov 22 silver and copper

Continue reading Is a 13 or 15 Handle Next for Silver?

Zero Hedge Creates Drama Out of Nothing

By Steve Saville

[biiwii comment: Gary T, Otto Rock and Steve-O Saville… not expecting a plethora of Christmas cards from certain corners of the financial media and sub-media]

There was a post at on 20th November titled “Fed To Hold An “Expedited, Closed” Meeting On Monday“. The title suggests that something strange is afoot, that is, that the Fed is up to something out of the ordinary. Hence the emphasis on the words “Expedited” and “Closed”.

To make sure that its readers get the message, the post goes on to state:

Given how awesome everything appears to be, judging by stocks and the tidal wave of FedSpeak of the last week confirming that rates are rising in December, we found it at least marginally ‘odd’ that out of the blue, the Fed would announce an ‘expedited, closed’ meeting on Monday…

Odd? Out of the blue? Really?

The author of the ZeroHedge post forgot to mention that these “expedited, closed” meetings happen with monotonous regularity. The one scheduled for Monday 23rd November will be the third one this month. And there were four in October, three in September, two in August and five in July. You can find the notice for the coming meeting and the records of previous similar meetings at

Even the topic under discussion at the 23rd November meeting will be routine. The purpose of the meeting is: “Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks.” A meeting with the same purpose happens every month. For example, there was one on 26th October, one on 15th September, one on 31st August and one on 27th July.

Always be aware of the agenda/bias of the news sources you use.

Silver vs. Gold; Still no Inflation Signal

By Biiwii

We harp on it all (and I do mean all) the time in NFTRH.  There is most likely no end to the commodity-adversarial deflationary phase until silver is bid higher than gold.  People intellectualize things that they see with their own eyes like rising costs in the economy, and think inflation is coming.  I think it is too, but market signals will tell when the market is ready.

As it stands, silver is getting bid down worse than gold and that has been a trend since the last inflation phase blew out in 2011.  There is no signal.

slv and gld, no inflation yet

You remember the end of the last cycle, I am sure.  It was called nearly to the week by Bill Gross’s short of the long bond (loudly broadcast across financial media) due to inflation expectations.  We had a different view; one that stated ‘maybe, but let’s tap the breaks for a moment and see if we can break the Continuum first…’ 

We didn’t.  We simply added the 2nd to last red arrow on said Continuum…

30 year yield monthly chart, an inflation barometer

Have a nice weekend folks.


Gold’s “Commercial” Traders Are Different…

By Steve Saville

Gold’s “Commercial” Traders Are Different Because Gold is Different

[biiwii comment:  From Back to Our Regularly Scheduled (de) Programming“While there are some quality people out there writing and speaking about gold, others peddle simple answers for other people to consume. Their business is drama, not managing financial markets.”  Saville’s post is both simple and undramatic.  But that doesn’t sell as well, now does it?

In a typical commodity market the traders known as “commercials” are usually hedging their exposure to the physical commodity when they buy or sell futures contracts. For example, in the oil market the most important “commercials” include oil producers, who are naturally ‘long’ the physical commodity and often sell futures contracts to hedge this exposure, and manufacturers of oil-based products, who are effectively ‘short’ the physical commodity (by virtue of the fact that oil is one of their biggest costs) and often buy futures contracts to hedge this exposure. However, the gold market is different.

Some of the commercial traders operating in the gold market are traditional hedgers. Mining companies and jewellery manufacturers, for example. But given that the existing aboveground stock of gold dwarfs the annual supply of new gold and that the amount of gold that changes hands for store-of-value, investment and speculative purposes dwarfs the amount of gold bought/sold for more traditional commercial uses such as fashion jewellery and electronics, a reasonable and knowledgeable person would expect that traditional commercial traders would play a relatively small role in the gold market. A reasonable and knowledgeable person would be right.

In the gold market the dominant commercials are not traditional hedgers. They are also not speculators, in that they rarely take positions that rely on the gold price moving in a particular direction. They are spread traders, meaning that they make their profits by trading the differences in price between the physical and futures markets.

For example, if speculative buying of gold futures causes the futures price to rise relative to the spot price by a sufficient amount it will create an essentially risk-free arbitrage opportunity for a commercial to sell the futures and buy the physical, and if speculative selling of gold futures causes the futures price to fall relative to the spot price by a sufficient amount it will create an essentially risk-free arbitrage opportunity for a commercial to buy the futures and sell the physical. For another example, if gold buying by hoarders of physical gold causes the cash (physical) price to rise relative to the futures price by a sufficient amount it will create an essentially risk-free arbitrage opportunity for a commercial to sell the physical and buy the futures, and if the ‘dishoarding’ of physical gold causes the cash (physical) price to fall relative to the futures price by a sufficient amount it will create an essentially risk-free arbitrage opportunity for a commercial to buy the physical and sell the futures. In other words, commercial trading in the gold market is mostly about arbitrage.

The difference between commercial trading in the gold market and commercial trading in all other commodity markets is tied to gold’s long history as money. Strangely, many gold ‘experts’ assert that gold is different due to its dominant monetary and store-of-value roles, but then insist on applying a traditional commodity-style method of supply-demand analysis. Unsurprisingly, the result is a pile of hogwash.

Housing Starts – Lumber’s Message

By Tom McClellan

Housing Starts – Lumber’s Message

Housing starts follow lumber prices, tom mcclellan
November 19, 2015

There are a lot of leading economic indicators in use these days, but the one I like the best is lumber futures prices.  Perhaps this is because almost no one else seems to pay attention to them as an economic gauge.  Lumber prices tell us pretty reliably and ahead of time about what is going to happen to real estate prices and activity, plus interest rates.  They can even tell us about what unemployment is going to do.

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Pivotal Events

By Bob Hoye


pivotal events by bob hoye
Pivotal Events from Bob Hoye, click for full PDF

One of These Things is Not Like the Others…

By Biiwii

I just got done with an extensive multi-market subscriber update over at, concluding with this…

“Very generally, for a real (as opposed to a day trader’s) positive view we’d look forward to the prospect of gold topping out vs. silver and the gold-silver ratio’s fellow Horseman, the USD capping its mega rally for a correction.  I think these things are coming but too many people have been calling for a commodity rally and inflation.  The deflation story is very long in the tooth, but it could end in some fireworks as opposed to just gently expiring in favor of a new inflationary backdrop.”

So being on watch for the end of the deflation backdrop that has held sway since 2011’s ingenious inflation sanitizer, Operation Twist, this article at Bloomberg caught my eye.

Everything Except Headline Inflation Is Saying the Same Thing About Inflation

As a point of reference, they provided this chart.

bloomberg graph, inflation

I noted this effect some time ago after having my garbage hauler increase prices despite utterly bombed out oil prices.  He cited rising administrative costs, fees, etc. in the chain.  We note each month the firm upward trend in healthcare services and increasingly now, other services, like the oh so vital hospitality and leisure.  From Bloomberg…

“The carnage in the commodities complex is putting a large amount of downward pressure on the headline inflation rate. Other measures of inflation that remove outliers or food and energy prices are considerably higher, thanks to the pace of price increases in medical care services and shelter.”

They include a graphic of some rising prices to make the point.  With each employment report, we review and break down the Payrolls data to see an economy servicing itself now.  Strong dollars buy a hell of a lot of energy and food right now.  But there is an elephant in the room and his name is Services.  Here again is the most recent payrolls (by industry) breakdown from the wonderful

payrolls by industry

As much as I poke fun at them, the Fed is not stupid.  Its various members know full well that there is a price to pay for the 24/7, 365 inflationary fire hose routine.  Sophisticated market players see this as well, but sometimes their brains work more efficiently than the markets, which are chugging along at their own pace.

Watch the Gold-Silver ratio folks.  It still has upside likely, which means it does not yet look like time to go into an inflation trade.  But when the GSR blows out, put your thinking caps on.