REPOCALYPSE 2019
As big as the win last week was for “Brexit”, as small as the “huge” Trump trade deal is, no news of the last week *Trumps* the gargantuan US Fed promise of 500BILLION to a frozen short term REPO money market over the next few weeks, just to keep the engine running and stock markets rising.
It is laughable that this time last year The Fed, Goldman and all other Wall Street cheerleaders were prognosticating more tightening, 3 to 4 rate hikes for 2019 as everything was awesome.
Then the share market fell through December 2018 and Jan 2019, so we ended up with 3 rate cuts, the promise to “print whatever it takes”, culminating in the commitment of 500BILLION over the next few weeks so everyone can enjoy the festive season without having to worry about pesky financial seizures and everything is still awesome.
As we pointed out in our last note, the “anti-freeze” application all started on September 17.
Check it below, then add the 500B coming down the pipe.
One analyst, Curvatures Chris Skyrm, sums it like this:
One word: “Massive“. A few more words: The largest series of RP operations ever! The Fed announced it’s RP operations schedule for the next few weeks and it’s huge!
Here are my calculations:
There are two existing $25 billion term operations over the Turn already in the market totalling $50 billion
The Fed committed to at least a $150 billion overnight operation on year-end
A REG-start year-end operation on the day before year-end of $75 billion
Between now and year-end a total of 6 term RP operations totalling $225 billion
All total, I count the Fed committed to pump $500 billion in the Repo market over year-end. Naturally, the Turn (12/31-1/2) rallied a bit today. Trading from 4.25% yesterday to 3.80% today”
For this:
Awesome.
Meanwhile, investors pile into riskier assets as markets rise and the appearance of “risk” fades. Quite ironic.
Now, if you’re one of the few that actually wonders where all the money is going, the best we can come up with is this: the Financial System is like a car, the car needs fuel, the above monetary injection is like putting fuel in the car, the fuel keeps the car moving and ejects some exhaust.
That’s the best we can do without going into the plumbing of the debt and derivative chaos we still have to live with as investors. And how about all that quality rated corporate “paper’? Again.
Seriously, investors probably need to consider what happens if we have a “problem” with this clunker that’s burning more and more fuel for less milage.
And, of course, how such a problem will manifest and affect your assets.
In our view, the answer is clearer than ever. As reform is not on the menu, inflation it will be.
The fact that Central Banks across the world are telling you inflation is what they want should already have you alarmed.
In our world, we’re pretty sure most people do not want their cost of living to rise as much as central bankers say they do. Your .gov is telling you it’s a necessary evil.
As far as inflation goes, some Central banks, including the US and Australia, remove some inconvenient and annoying cost components like food and energy from “official” inflation numbers, in order to keep order.
It’s a shame we don’t have a Shadow Stats type analysis in Australia. In the US its http://www.shadowstats.com/alternate_data/inflation-charts . These guys keep charts with the “removed constituents”.
As shocking as the 9% reality v under 2% reported by .gov may be, it can get much worse and history has taught some of us that the inflation genie is very hard to put back in the bottle.
To add to the inflation story, have you noticed that there is hardly a country in the world that doesn’t want to devalue its currency right now?
With this being the case, what might this do to commodity prices, the key input to prices?
What’s the antidote to inflation? How do you protect against such currency devaluation?
It is at this point that we find it appropriate to encourage you to differentiate commodities and precious metals, even though prices of both may rise.
Gold and silver may have some commodity uses/value (silver more so than gold), but they’re not only commodities, they’re monetary metals too.
Since US President Nixon closed the “gold window” in 1971 there has been a general acceptance of the de-monetisation of gold.
But something has changed in recent times.
In 2019 Central Banks (ultimate insiders?) have turned into net buyers of Gold.
This is while producers are still trading in the “doldrums” of 2016 and major discoveries are rare. Supply demand equilibrium may already be strained.
Most Fund managers still have little interest (apart from their personal accounts) in precious metals. Up until recently, the career risk of a fund manager taking a gold investment idea to an investment committee was being thrown out the window, now they just get pushed out the door.
The reality of precious metal value in an out of control monetary Fiat world seems to be gaining traction from some very prominent fund managers in recent times.
It’s probably fair to say that if global investment “managers” were to decide to allocate just 1% of investable funds to monetary metals like gold and silver, there is simply not enough to go around.
At USD1500 that is. As Thomas Kaplan recently stated, “at $3000 we may see some equilibrium emerge”!
Gold is as cheap today as it was in 1970 and 2000.
Wishing you peace for the festive season!
