Category Archives: Precious Metals

“Dr. Doom” Roubini Expects a ‘Long, Ugly’ Recession and Stocks Sinking 40%

(Bloomberg) — Economist Nouriel Roubini, who correctly predicted the 2008 financial crisis, sees a “long and ugly” recession in the US and globally occurring at the end of 2022 that could last all of 2023 and a sharp correction in the S&P 500.Most Read from Bloomberg“Even in a plain vanilla recession, the S&P 500 can fall by 30%,” said Roubini, chairman and chief executive officer of Roubini Macro Associates, in an interview Monday. In “a real hard landing,” which he expects, it could fall 40%.Roubini whose prescience on the housing bubble crash of 2007 to 2008 earned him the nickname Dr. Doom, said that those expecting a shallow US recession should be looking at the large debt ratios of corporations and governments. As rates rise and debt servicing costs increase, “many zombie institutions, zombie households, corporates, banks, shadow banks and zombie countries are going to die,” he said. “So we’ll see who’s swimming naked.”Roubini, who has warned through bull and bear markets that global debt levels will drag down stocks, said that achieving a 2% inflation rate without a hard landing is going to be “mission impossible” for the Federal Reserve. He expects a 75 basis points rate hike at the current meeting and 50 basis points in both November and December. That would lead the Fed funds rate by year’s end to be between 4% and 4.25%.However persistent inflation, especially in wages and the service sector, will mean the Fed will “probably have no choice” but to hike more, he said, with funds rates going toward 5%. On top of that, negative supply shocks coming from the pandemic, Russia-Ukraine conflict and China’s zero Covid tolerance policy will bring higher costs and lower economic growth. This will make the Fed’s current “growth recession” goal — a protracted period of meager growth and rising unemployment to stem inflation — difficult.Once the world is in recession, Roubini doesn’t expect fiscal stimulus remedies as governments with too much debt are “running out of fiscal bullets.” High inflation would also mean that “if you do fiscal stimulus, you’re overheating the aggregate demand.”As a result, Roubini sees a stagflation like in the 1970s and massive debt distress as in the global financial crisis.“It’s not going to be a short and shallow recession, it’s going to be severe, long and ugly,” he said.Roubini expects the US and global recession to last all of 2023, depending on how severe the supply shocks and financial distress will be. During the 2008 crisis, households and banks took the hardest hits. This time around, he said corporations, and shadow banks, such as hedge funds, private equity and credit funds, “are going to implode”In Roubini’s new book, “Megathreats,” he identifies 11 medium-term negative supply shocks that reduce potential growth by increasing the cost of production. Those include deglobalization and protectionism, relocating of manufacturing from China and Asia to Europe and the US, aging of population in advanced economies and emerging markets, migration restrictions, decoupling between the US and China, global climate change and recurring pandemics. “It’s only a matter of time until we’re going to get the next nasty pandemic,” he said.His advice for investors: “You have to be light on equities and have more cash.” Though cash is eroded by inflation, its nominal value stays at zero, “while equities and other assets can fall by 10%, 20%, 30%.” In fixed income, he recommends staying away from long duration bonds and adding inflation protection from short-term treasuries or inflation index bonds like TIPS.(Adds previous Roubini debt warnings in fourth paragraph)Most Read from Bloomberg Businessweek©2022 Bloomberg L.P. Continue reading

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Peter Schiff: The Fed Won’t Bend This Inflation Curve

September 15, 2022  by SchiffGold  0   0The CPI data for August came in hotter than expected, sparking the biggest market crash since the 2020 COVID lockdowns. The price of gold also dropped on the news in anticipation of the Federal Reserve taking interest rates higher. Peter Schiff talked about the inflation news on his podcast and said investors need to get gold now before the entry point rises a lot higher. Because at some point the markets are going to figure the Fed can’t bend this inflation curve.After the CPI data came out, stocks plunged. The Dow Jones fell by over 1,276 points. It was the seventh-biggest drop (based on points) in history. Other stock market indices charted similar declines. The NASDAQ fell 5.16%.As Peter noted, gold also fell, but not nearly as much as stocks. The yellow metal was off about 1.3%. But gold did manage to close above $1,700, although it traded below that level interday.The dollar index charted a huge swing, moving from 107.68 prior to the CPI data and then rallying to close at 109.9. Peter said it was one of the biggest moves in the dollar he’s seen.The markets were preparing for a softer CPI. Everybody was under the impression that inflation had peaked and that it was coming down, and that when we got validation that inflation was coming down by the August CPI, that would take a lot of pressure off the Fed — that it wouldn’t have to raise rates as much because the inflation problem was solved. That’s one of the reasons the dollar sold off. It’s one of the reasons gold and silver rallied. In fact, it’s one of the reasons the stock market had been rallying, because the Fed was going to be taken out of the game. Maybe not completely sidelined, but at least it was going to tone down its rhetoric and maybe not raise rates as much as people thought. But now that we got this hotter than expected number, people think the Fed is going to raise rates more than they thought.”Peter said the markets still don’t understand that even if the Fed hikes by 100 basis points at the September meeting, it will not bend the inflation curve.I don’t know why everybody continues to be surprised when the inflation numbers come out worse than expected. They assume that what the Fed is doing is going to work. It’s not going to work. The people who think it is don’t understand the nature of the problem.”[embedded content]The numbers indicate that Fed can’t win this inflation fight. Part of the solution is positive real interest rates. If you look at all of the Fed tightening cycles since 1973, the central bank has never stopped tightening before the Fed funds rate was higher than the CPI.As long as we have interest rates below the inflation rate, even if they’re higher, they’re still negative, and negative interest rates put upward pressure on inflation. You can’t fight inflation with negative interest rates. It’s like saying, ‘I’m going to fight this fire by pouring gasoline on it. It’s just that I’m only going to pour a little bit of gasoline, not as much gasoline as I was pouring on before.’”Clearly, the fire will keep getting bigger.But the markets don’t seem to get this. Otherwise, they wouldn’t be selling gold into rising inflation.After all, gold is an inflation hedge. And if investors expect more inflation, they’re going to hedge with gold. And if you expect inflation to continue, gold is going to discount that future inflation into the present, and it’s going to be reflected in the current price of gold.”The question is when will those expectations change?How many more months can the CPI come out hotter than expected and investors still believe that inflation is going to go away? How many more rate hikes do we need that are ineffective at reducing inflation before investors figure out that it’s not going to work? And of course, how many rate hikes will the Fed be able to get away with without crashing the stock market? Without crashing the real estate market? Without causing a financial crisis?”And if the Fed keeps pushing that envelope until it rips, will the Fed continue to hike rates? Or will the Fed pivot when it anticipates or acknowledges the next crisis?As long as it pivots at all, that means inflation is going to run out of control. And if it is, the dollar needs to go way down and gold needs to go way up.”Peter said he doesn’t personally think the Fed will get away with very many more rate hikes.He pointed out that gold didn’t fall all that much given the plunge in stocks. In fact, gold didn’t even close on the lows.Maybe that’s some indication that investors are beginning to question that narrative. They haven’t completely figured it out yet, but some of the selling may in fact have been exhausted.”Peter said at some point there will be divergence and gold will start rising when inflation is worse than expected. The dollar will fall. And the long end of the bond market will start getting beat up.If you’re waiting for a sign, some indication that everything is about to blow up, that’s what you should look for. You should look for a reaction in the bond market and the currency market and the precious metals market that is opposite of the reaction that we’ve been having.”Peter said you shouldn’t wait for that signal to position yourself.I think it’s possible that by the time we get that signal, it could be a much worse entry position than the one we have right now. Because the markets can start anticipating that signal before we actually get it. I know it’s going to happen eventually. But when it does happen, that’s when you’ll know the end has finally begun. But before it does, take advantage of other investors’ misunderstanding of what’s going on by increasing your exposure to both gold and silver, and gold and silver mining stocks.”Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today! Continue reading

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A Silver Bottom?

OseloteBy Craig Hemke It has been a very challenging year for almost all asset classes, and the precious metals haven’t had it easy either. Though the Fed seems intent upon further rate hikes in the months ahead, one day soon will bring a bottom and trend change for COMEX gold and silver. Could that bottom and trend change have already occurred? Maybe. As with all trend changes, this one will only be seen in hindsight. But in the COMEX precious metals, there are always some signs you can look for, and a few of them are currently in place. Let’s start with short interest in the big silver ETF, the SLV. Growing short interest in this fund reflects a retail and institutional demand to bet on lower silver prices in the months ahead, and it is almost always a good contrarian indicator. Why? Because this type of shorting reflects hot money chasing a dying trend. Where was all this shorting back when silver was $28? There wasn’t any, and all the hot money was on the long side instead. Now it’s short, and that alone should tell you something. SRSrocco Report Next we should look at the latest Commitment of Traders report in order to assess where things stand with the “big boy” money. Let’s start with the Legacy Report, which simply places traders into the Commercial and Large Speculator categories. On this report, the Commercials are almost always net short while the Speculators are net long—but not currently, as you can see on this table provided by GoldSeek: GoldSeek As you can see, as of the COMEX close on September 6—and with COMEX silver at $18.14—the Large Speculators were actually NET SHORT 12,784 contracts and GROSS short 64,498 contracts. At 5,000 ounces/contract, that’s 64,000,000 ounces net short and 322,500,000 gross short. And those are all ounces these “Speculators” DO NOT HAVE. They are simply short the COMEX paper. This means that, at some point, they will be forced to buy back and cover those short positions because they do not have the metal to deliver to any “long” standing for potential delivery. For historical context, other Large Speculator short positions peaked at 22,409 net short on May 28, 2019, and the all-time high of 28,974 net short on September 4, 2018. See the chart below: Barchart Further, on the disaggregated report where the CoT data is broken into smaller categories, be sure to note which entities hold these net short and net long positions. Below you can see the breakdown where “Hedge Funds” are currently net short 24,742 COMEX silver contracts for about 124,000,000 ounces. That’s about 15% of annual global mine supply and, again, metal they do not have. On the other side are the “Swap Dealers”. What’s a swap? A futures or options contract. And who “deals” them? The bullion banks. And who are the bullion banks? Think JPMorgan and Bank of America. And these “Swap Dealers” are now NET LONG 21,787 contracts. Which side do you think comes out ahead in the long run? Author And finally, let’s have a look at the short-term chart, where price is once again trying to gain a toehold above its 50-day moving average. Since price has been in a pattern of lower lows, the key in recognizing a bottom will be a higher high. In this case, a move above the $21 highs of mid-August. Once above that level—and then above $22 for further confirmation—we’ll be able to state that the chart has officially reversed. For now, just keep watch on that pattern of lower lows and lower highs and watch for it to shift. Barchart So keep an eye on things in the days and weeks to come. Silver will soon bottom, of that you can be certain. It’s just a matter of when. This has been a difficult year, but it can all change pretty quickly and that next Fed-loosening-induced rally is going to be significant. Original Post Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors. Continue reading

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