Two things... with interesting parallels... in relation to the news today:
Gold Gains as Fed’s Powell Stops Short of Giving Taper Timeline
The central bank could begin reducing its monthly bond purchases this year, though it won’t be in a hurry to begin raising interest rates thereafter, Powell said Friday...
The dollar sank as the Fed Chair spoke, allowing gold to gain as investors closed bets on a tapering timeline being announced. “
Powell’s speech is slightly dovish but not dovish enough to jump start any large-scale buying in precious metals,” said Nicky Shiels, head of metals strategy at MKS (Switzerland) SA. “It was his strongest signal yet that the taper will begin this year (not next) and he didn’t fully capitalize on the risk of the delta variant on policy.”
Powell’s much-anticipated speech eased prior concerns that the central bank will soon tighten monetary policy to combat inflation. A rapid increase in U.S. prices linked to snarled supply chains and shortages had raised the prospect of an early reduction in stimulus, which has cast a shadow over the gold market this month. The Fed Chair used his speech to reiterate his view that those pressures are temporary and confined to a narrow group of goods.
The metal has stumbled much of this year as vaccine rollouts, stronger-than-expected recoveries in some economies and worries over rising interest rates dimmed its appeal
So, gold, which thrives on chaos and inflation... is stumbling because of... chaos and inflation ? A perceived risk of "an early end to stimulus" based on tapering QE (which is the opposite of stimulus)... obviates the fact of inflation actually continuing... for reasons... and all the while its impacts accumulating ?
Start with... QE is not "inflationary"... its intended function is to be counter-deflationary... in that without it, banks balance sheets would have imploded long ago, leaving all the banks bankrupt. So, QE preserves and extends the impacts of the 2008 GFC bank implosion... while providing a handy metric to keep track of how much of the banks balance sheets have evaporated since 2008. But, QE isn't real money, its is synthetic money... with its purpose and function limited to that of temporary financial spackle in light duty applications, or that of a temporary concrete patch and sealer in heavy duty use. QE fills holes well enough to prevent you falling into them... but, it doesn't actually return anything to its "normal function" ? To restore normal function... you need to remove the QE... only as it is able to be replaced with an ACTUAL repair ?
But, the actual repair required... is an amount of REAL money (adjusted for inflation)... that is comparable to the value of the synthetic money used in filling the hole ? But, where is that money going to come from... and what impacts will it have, where-ever it does come from, when-ever it does ?
They have a temporary hole filler that works, but they haven't figured out how to actually FIX the hole, yet ?
That's why many in the market say... "it will never happen"... they can never end QE. But, if they don't ever end QE... the temporary repair that lacks full function... will gradually take over the whole system... ?
Gresham's Law... that bad money chases out the good... ? QE is bad money... compared to fiat... which is vastly LESS constrained in its functions ? The presence of the QE is distorting the entire system ? And, the banks LIKE the distortion, as they have structured it, and ensure that while the mass of it fills the holes in the balance sheets... the function of it operates as a wealth transfer pump from the market to the bank owners ?
And, replacing the QE ? You can't just remove it... as all that does is restore the giant holes in the banks balance sheets... winding the financial crisis clock back to 2008 ? So, I think the total of the QE issued... is really only an accumulation of postponed inflation... as eventually the synthetic QE money has to be replaced with money that has real function. And, as that occurs... the impact is inflationary...
But, missing throughout ? Beyond the truth being missing in any of it... as the "narrow group of goods" addressed meaning "things that money can buy"... while the supply chain issues can't be hand waved away as if, "oh, that old thing... don't mind that"... And, why would "shortages" raise the prospect of an early reduction in "stimulus" (which QE is not) ? Because... the best way to get more of something, and thus relieve shortages and inflationary pressures... is to remove the flows of money critical in enabling more of what you need to end the shortage ? Yeah. That's BS... of which there is no shortage...
IMO, 1. inflation cannot possibly be transitory... because STRUCTURAL issues [snarled supply chains and shortages] are not caused by, nor resolved by [although can be made vastly worse by tightening] monetary policy... but, 2. they can lie about it all day long... and they do lie about everything all the time... hoping lying to you will work to deflect you from a proper perception of reality... in ways they find useful.
And, there is nothing more useful to a central banker than flagrantly lying to you about the value of the fiat money they are creating hand over fist... or not... and having you believe them...
What's missing ? What's missing, in Oppositeland, is any discussion of the DUAL facts that inflation isn't ONLY about easy money... and that "easy money" isn't about QE at all... as QE is actually MASSIVELY DEFLATIONARY... so removing it would actually help fuel inflation and accelerate it massively ? QE is a measure of the accumulated inflationary impacts that have been suspended... but do have to happen... for financial normalcy to return ? What's missing is that the apparently irresistibly shiny lure of QE as a "driver" of inflation realized... rather than a metric of its accumulated opposite defined in terms of a defective synthetic money... has deflected market attention away from the fact that that's already happening...
The "drivers" of inflation have now shifted from the deflationary to neutral synthetic hole filler of QE... to the actually inflationary... so far this month... the accelerated issuance of $650 Billion in shiny new SDR's... and $5 trillion in new spending just passed...
The QE itself does not cause inflation... its just a replacement that fills holes... but, its also a binder... so the more holes that need to get filled... the more static and less dynamic the function of the system... QE is not a strong arm helping us recover... its a wooden leg. Trying to get the old, fat, wooden legged banker led mercantilist economy to try to act like the lithe young free market ballerina / gymnast it once was ? That takes a lot of "incentive"...
Reality is... they've presented the stellar 10 year auction as evidence of "real market demand" for government debt... as piles of unallocated money in the global market apparently just couldn't get enough new U.S. government debt ? But they've also used that "stellar demand" as evidence that everything in in the economy is working really great ? What they don't tell you... is that the "stellar demand" came from the SDRs... free money that they printed out of thin air... and gave away... for those getting the free money to use in buying the 10 year...
I believe, in the real world, they call that, not "stellar demand" but "monetizing the debt"...
So, its a two fer in a sleight of hand... on the one hand... borrow $5 trillion more... on the other... give away $650 billion to for free... to spend on making it look like that money printing doesn't matter ?
However, if you're one of the lucky recipients ?
Zimbabwe receives US$961m SDR support from IMF
Yemen receives $665mn from IMF in SDR allocation
Notice all the media coverage focuses on poor countries getting a lift... and being encouraged to spend it on solving the problem with Covid ? Ie, giving away "free" money to recycle it into the drug companies ?
But NO WHERE do you see anyone in the MSM talking about the allocations of the SDR money to China, or the USA, or the EU... And, whose pockets it is all that money is going into ? You have to look for information on that... and, doing so... you find some who are at least trying in addressing it honestly... making it worth reading the whole thing:
2.7 bln dollars debt: Whole truth about "gift from IMF" to Independence Day
At the moment, the IMF has not allowed the use of SDRs for direct financing of the budget deficit, limiting itself only to the fact of an increase in the gold and foreign exchange reserves of the central banks of the member countries (the goal is to increase systemic liquidity).
I have noted the SDR's immediate link to the "most successful ever" 10 year auction... and I have been aware, perhaps mentioned it, that other countries are likely to use their "free money" to buy gold... But, this is the only other instance I know of where someone says that...
What does that SDR issuance mean... in relation to TIMING as in... it is part of the planned preparations under Basel III... taking us from "Ready" to "Set" in the sequence of "Ready, Set, Go" ?
Others are instead "dissembling"...
Rescue by Helicopter Reserves
As noted in a report by... (Goldman Sachs, July 20), the increase in SDR stocks does not automatically correspond to an increase of money supply in the global economy. The use of SDR only transfers hard currency from one country to another, with corresponding changes in the composition of reserves. There will only be such an increase if the central bank that issues the hard and convertible currency granted in exchange for the SDR does not sterilize its monetary impact.
SDRs, therefore, do not constitute money thrown from a helicopter, as in the famous image used by Nobel Prize-winning economist Milton Friedman in 1969 and cited in Ramos and Moreno's “Helicopter Reserves” report. But one cannot deny that this allocation fell from the sky at a good time for economies struggling with a shortage of reserves and immediate needs for external financing
In other words... sure, Joe Biden really made a mess out of a situation that was fully in control before him, in Afghanistan... but, now... he's giving away free money ? What could go wrong ? The author just above is right... SDRs "do not constitute helicopter money"... they only constitute loading the helicopter with money and watching it fly away... trusting in the crew to do the right thing...
So, that's what I think on the debt side... but, what about gold ?
In gold, if you own some amount of it, it matters to you quite a lot what the price is. But, if you own no gold at all, but suddenly, like it was an SDR, you manage to find a big pile of it just lying around... the market price or value of gold is much less critical in your judgement... than the comparison of how much gold you had before, with how much you have now.
Lying about inflation... and other monetary policy functions... ignoring "structural" problems and the intrinsic risks and costs of mercantilist fragility... while manipulating markets ? Yeah... that can alter the market price of gold defined in paper script or digital widgets, whatever... but, it can't alter the fact in the reality... that you used to not have any gold.. and now you have a big pile of it... if you do happen to find a pile sitting around somewhere ?
So, in the mining stocks, for now, I'd rather focus my effort on those with ample capacity to improve their position significantly through "finding big piles" rather than only those who've already found them.
For those sitting on big piles... the question is one of timing in "when will the gold price move higher"... (or, when will the other forms of money lose all their value) ? For those with nothing, or those working to start growing a stack, the question is also one of timing in "when will I find a big pile of gold"
The two issues in timing... have very different drivers... one very passive, waiting for others to figure out the price should be higher... one very aggressive, not waiting at all... but going out to look for that elusive pile...
But, for patient investors, the two factors in timing tend to not be in conflict that much... the declining price of something you don't have isn't an overly corrosive factor relative to the value of a share in it... which value for those... is as much in the nature of the effort in the looking... and particularly in the finding... as it is in the having of the value at a particular price. So, if you are a gold investor... the right thing to do as the gold price is stuck suffering the slings and arrows ... more than the outrageous fortune ?
I think it matters that you focus on finding finders... and not explorers... but finders who are finding... with the three factors being in investors control being... awareness in the geology, risk, management track record, and the validation of those backing them.... awareness in the timing in the efforts made... and awareness in the fact of $ being essential to enable the finders in finding anything...
Find the finders who are finding... sounds simple enough. And, its not that hard. It's made vastly easier, in fact... by having a bit of time to use in the effort... while the price function in gold and shares... is working to enable you in buying more upside for less money...
Finding the right ones... even enables making picks that swim against the tides... and, not just in gold ?
A few recent mentions from my list:
CYDVF, LIACF... are lithium finders... that have been happy since mentioned...
Yesterday, in gold... I noted... ESVNF / ESNR.CN... also has an Aussie ticker... as one where following Sprott as he finds and validates and FUNDS finders in finding... might be a useful approach ? |
