MAD MARCHING
Welcome to an appropriately named “Black Friday”. This week has been quite the show, so far.
Before we discuss the what and when of “opportunity” arising from this current calamity, let’s make sure we know where we are.
What we’re dealing with here is a collision of two Pandemics.
The first is known as the Coronavirus, and seemed to have kicked off around December 2019.
The second, a “financial virus”, has been around for many years and muted into its current form around September last year.
The financial virus’s collision with the Coronavirus has bought forward a day of reckoning to a financial system close to the end of its use-by date.
All the “can kicking” and money printing to main status quo and boost asset prices to the moon over the last 10 years has left central bankers with very little ammunition.
As has been evidenced all week. No matter what they’ve thrown at markets, markets have not come to order.
Last night, an announcement of MOAR QE and a USD275BILLION one day REPO “investment” did NOTHING!!
The week is not over yet and a repeat of last night in the US tonight will probably lead to an early closure for the weekend, or longer.
Don’t think the failure of emergency liquidity this week will deter “monetary authorities”, it won’t.
They’re probably thinking it just wasn’t enough. It wasn’t.
Unfortunately, the problem is systemic.
Over the years, the best way we found to help investors understand what systemic looks like was this: Deutsche Bank’s little derivative book.
Don’t forget, it’s not just Deutsche, it’s also most other major financial institutions, believing it all nets out.
It does all net out… UNTIL SOMEBODY CANT PAY!!!
Few analysts have yet to understand the enormous consequences of the coronavirus for missed payments and accumulating current debt, which is and will rapidly drain liquidity from wholesale money markets. It is increasingly certain that the eurozone’s banking system will require rescuing from insolvency with knock-on consequences for the global monetary system. Concern over the consequences for the $640 trillion OTC (Over the Counter) notional derivative market, particularly for $26 trillion of fx swaps, is so far absent.
Same as it was in 2008.
We said at the start of the month that the Black line in the chart below would be hitting the bottom by the end of the month, we won’t make the end of the month.
When we’re all at 0% and minus, would you like some more debt?
Now we await the liquidity avalanche and subsequent monetary debasement.
Which, of course, brings us to GOLD.
“We can ensure an adequate supply of dollars. What we cannot guarantee is their purchasing power”- Alan Greenspan.
Wise words, although we’re quite surprised Gold has not fallen further as banks and investors scramble for liquidity, in the same way Gold stocks have.
Gold stocks have been crushed in the rush for the exits, even though Gold in AUD remains over $2500 an ounce.
Eventually, in the scramble for collateral many paper gold investors will feel like they’re swimming naked, they don’t own what they think they own, not an ounce.
This effort should initially move the price down, on its way to an upper price level we’ve not seen before.
The aforementioned OTC, over the counter, derivative Gold market with its 92:1 ounce ratio should be on fire by now.
The move from paper to physical will be epic to watch as Central Banks crank the power to 11.
Don’t forget, in 2008, Gold initially fell when TSHTF and it took 3 to 6 months of digesting the Central Bank response before it took off.
Unfortunately, in a sell off like the one we are experiencing takes everything down in the short term.
How about the Credit Default Swaps on the US of A, ay??
What do you think this is saying about the future of the US dollar? Exactly what it should, is the answer.
Story for another day.
More on currency debasement to come.
Ready to talk reset yet?
