(12) From Bill Fleckenstein today, and I wet myself:
Prop Wash Versus "Bretton Woods III"03-08-2022
The upside carnage and chaos unleashed across the base metals and strategic metals caught up with the precious metals today, as they erupted early on (more about that below). The difficult thing now when it comes to the precious metals is trying to determine how much of the price action is a function of the fact that we're probably moving to a new sort of monetary regime, and how much is the prop wash from the commodity dealer community (of all flavors) and associated margin calls.
That's of course impossible to guess at, but my response was to trim a little from some of my larger positions "just in case." My hunch is that these will be bad sales, but I just don't know. If they turn out to be good sales, I will look to replace what I've sold. In any case, no one should take this the wrong way. I never disclose the size of my positions or my overall exposure because I don't want others to copy me, but I have been very aggressive and I'm just lightening up a touch.
Third Time's the Charm? In terms of the potential new monetary order that I mentioned, I don't mean something official like "Bretton Woods III," although that is a term I've seen thrown around by certain thoughtful people who have come to this conclusion from various different angles. (There are a lot of conspiracy theorists who have reached this conclusion as well, but they don't really count.) Zoltan Pozsar, the strategist for Credit Suisse, said it pretty well in a recent note on this topic with the very headline, "Bretton Woods III."
Pozsar compares this to the 1973 OPEC supply shock (he calls it the 2022 Russia supply shock), but this one isn't being driven by the supplier, it's being driven by the consumer. He notes that, "[Perversely,] the aggressor in the geopolitical arena is being punished by sanctions, and the sanctions-driven commodity price moves threaten financial stability in the West. Is there enough collateral for margin? Is there enough credit for margin? What happens to commodity futures exchanges if players fail?"
The Great Unraveling I don't have a link to this because somebody sent me the full text itself, and it appears to be Credit Suisse proprietary content (you can find screenshots of it on Twitter), but he goes into more detail and articulates why he thinks what he does. However, the important part is his conclusion:
"This crisis is not like anything we've seen since President Nixon took the U.S. dollar off gold in 1971 -- the end of the era of commodity-based money. When this crisis (and war) is over, the U.S. dollar should be much weaker and, on the flip side, the renminbi much stronger, backed by a basket of commodities. From the Bretton Woods era backed by gold bullion to Bretton Woods II backed by inside money (Treasuries with un-hedgeable confiscation risks), to Bretton Woods III backed by outside money (gold bullion and other commodities).
"After this war is over, 'money' will never be the same again…and Bitcoin (if it still exists then) will probably benefit from all this."
Turning to the action, the equity market was about flat through midday after being a bit higher and a bit lower overnight. In the afternoon, it surged higher, then backed off, then rallied again. The net of the day's absolutely wild volatility was the small losses that you see in the box scores.
Away from stocks, green paper was a little lower, fixed income was aggressively weaker all across the curve, and commodities were all over the place.
"One of These Mornings, the Chain is Gonna Break" Nickel traded up to $100,000 a ton and across the commodity spectrum there was aggressive buying and selling. Just as my friend Joe mentioned last week, the bigger shortage problem appears to be base metals and rare earths rather than food, although food is going to be plenty expensive, but there were massive disruptions across the sector. It perversely turns out that Russia not only supplies tons of grain, but also almost everything that the whole green energy build requires. You basically couldn't have created a bigger disaster for physical goods if you had specifically set out to do so.
In any case, for the metals, after having been up almost 5%, silver closed with a gain of 3%, while gold closed 2.5% higher after a nearly 3.5% pop early on. The miners were very strong early before they backed off and closed mixed in very lumpy fashion on big volume.
Positions in stocks mentioned: none. |
