Notes From Underground: We Walked Off to Look For America

These are challenging times is the understatement of the decade.

The fear of pandemic has arrived and is causing great distress for families and the nation at large as we are tending to the sick and those forced into a change of everyday patterns. Since the beginning of February, we at NOTES FROM UNDERGROUND have been discussing the onset of the DEMAND SHOCK which would cause problems in the financial system because of the massive build-up of debt on a global scale. If businesses cannot operate as people hunker down in an effort to slow the spread of the virus then it goes without saying that DEMAND would suffer. If demand suffers on a global basis borrowers without cash reserves will struggle to sustain their businesses.

My mind turns to 9/11 when all Americans were admonished to get out, go to entertainment and food venues so as not to let the terrorists win and change our beloved lifestyles: spend, spend, spend. Then-President George W. Bush went to Yankee Stadium to toss out the first pitch of the World Series.

Yet this time it is different as we are self-isolating in an effort to win against the virus. All major sports have shut down in an effort to eliminate the COVID-19 spread. Now restaurants, movie theaters, schools and offices are being closed.

The economic machine is being forced to slow to a crawl but the overhang of debt remains. This is the issue of the DEMAND SHOCK we have spent so much time discussing on this blog. If this situation continues for a few months how fast do you think unemployment rises to 5.5% or even higher? The effort to limit the pain by fiscal solutions will prove a very valuable tool but for how long can the government go without any revenue stream before FOREIGN LENDERS turn off the spigot?

The initial response from the administration will be a form of Modern Monetary Theory for Jay Powell is a believer in the printing press as has suggested in the past. It is the fear of the demand shock that has the markets so roiled and causing gigantic losses for those involved in the RISK PARITY and SHORT VOL strategies. These efforts have crushed the fundamental-based traders for the last eight years as the FED‘s efforts to keep the liquidity flowing resulted in COMPLACENCY.

Passive investing ruled the day but the onset of the FEAR of a DEMAND SHOCK has disrupted the underlying premise of the mathematical models driving investment strategies. Even the proverbial safe havens have been “taken to the wood shed” as the long-held positions of the derivative kingpins have been liquidated in an effort to raise cash. The FED must have received word of a cash shortage as they quickly offered trillions of repo opeations for fears of a calamity in the repo markets. And yet, FRA/OIS spread is reflecting stress in the credit market, as it widened to more than 80 basis points.

The front March EURODOLLAR contract closed down 17 tics in response to the FRA/OIS widening. The 2/10 yield curve widened dramatically, closing above 45 basis points. If the curve continues to steepen (as I suspect it will), it could be a positive for the global macro world as banks will be able to generate profits, even in a zero interest rate world.

It will also result in a weaker DOLLAR, which is beneficial to the emerging market as they are loaded with DOLLAR-DENOMINATED DEBT. As the DOLLAR rallies against the emerging market currencies the debt load becomes more onerous.

This development is now acting as a drag on the world as COMMODITY INDEXES are at 30-year lows. Many commodity producers cannot generate enough revenue to pay back debt causing a demand shock within the economies that fuel their existence. In my opinion, the FED OUGHT TO announce an expansion of the DOLLAR SWAP LINES WITH EMERGING MARKET CENTRAL BANKS to ensure they’re able to meeting their financing needs.

The FED already has this agreement in place with the developed world banks. This is the role of the global reserve currency as the lender of last resort. The DOLLAR’S ROLE is most often an exorbitant privilege but in times of a GLOBAL DEMAND SHOCK it becomes an exorbitant burden.

***ECB President Christine Lagarde is being castigated for not cutting rates on Thursday and only increasing QE by roughly 120 billion for the remainder of the year in an effort to provide stability to the corporate bond market and small/medium business loans. I think this was the correct policy for it turns the focus onto the finance ministers of Europe to utilize fiscal policy as an economic stimulant.

Immediately following the meeting, German Chancellor Angela Merkel moved to suspend the fiscal strait jacket of SCHWARZ NULL: the black zero. The Germans will set the agenda for the fiscal bonds known as the Maastricht Accord. Lagarde was also admonished for a “faux pas” as she stated that the ECB’s role was not to compress yield differentials in an effort to replicate Mario Draghi’s “whatever it takes” to save the EURO.

The German/Italian, German/French 10-year yield differentials widened materially in response. Was this a “faux pas”? I think NEIN as it was a signal from Lagarde to all the EU ministers that if they wanted to prevent another financial crisis it is time to generate the infrastructure for a EUROBOND. She is using this crisis to effect her mandate: a EUROBOND supported by FISCAL HARMONIZATION. The Lagarde press conference and actions were a classic example of LESS IS MORE in EUROLAND.

***Also note: In an unscheduled announcement, the Reserve Bank of New Zealand slashed its key interest rate to 0.25% from 1% and said it will remain at that level for at least 12 months. And, if more stimulus is required, the RBNZ would prefer QE over rate cuts. The central bank cited the virus’s impact on the economy, referring to it as “significant,” while qualifying that the financial system remains sound.

***Amid the chaos there was a Bloomberg story about Treasury Secretary Mnuchin meeting with the Russian Ambassador to the U.S. Did they discuss Russian oil cuts in a response to the removal of sanctions, perhaps? This would alleviate some of the problems pushing the demand shock.

I end with advising those who are hunkering to go out for day trips with the car and take some time to see America from the ground up—-as Simon and Garfunkel once sang:
Cathy I’m lost I said though I knew she was sleeping,
And I’m empty and aching and I don’t know why
Counting the cars on the New Jersey turnpike
They’ve all come to look for America.


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77 Responses to “Notes From Underground: We Walked Off to Look For America”

  1. Judd Hirschberg Says:

    Thanks for the heads up Friday with the Steepening curves. They afforded some bloody good trades!

  2. Trader 1 Says:


    What do you think the FED would need to at this weeks meeting to get the FRA/OIS spread to narrow??

  3. asherz Says:

    Privilege and Burden of the reserve Currency-The Epologue

    Bretton Woods established the dollar as the reserve currency. This has had enormous benefits for the US. But along with the benefits came responsibility. The Fed monetary authorities were assumed to act responsibly as they in effect were the embodiment of Atlas carrying the globe on his back… but Atlas has shrugged.

    Living beyond its means was a prime benefit for the US of Bretton. The 1944 Agreement replaced the gold standard, which most currencies had adhered to, with the dollar. America owned 75% of the world’s gold. But in 1971 President Nixon totally decoupled the dollar from the metal. As shown in a previous chart on this blog, US debt began its upward climb. Slowly at first, and now with total abandon. It brings to mind Ernest Hemingway’s famous quote from “The Sun Also Rises.” “How do you go bankrupt? Two ways. Gradually, than suddenly.”

    Two trillion dollar budget deficit possible in the next year. And on Friday Mr. Powell took out his biggest howitzer and is offering up to $4.5 trillion with a T in liquidity by April 13.

    Gradually then suddenly. The demise of a reserve currency.

    As to gold? As Rothschild said after the battle of Waterloo was followed by a panic. ” Buy when there is blood in the streets.”

  4. ShockedToFindGambling Says:

    Yra…..I don’t believe a steepening yield curve is a positive for banks or macro world.

    For the most part, major bank loans are now floating rate……..they don’t do a lot of borrow short and lend long anymore…….too risky…… long term loans can suffer a lot of price depreciation due to higher rates and lower credit quality…..especially now. The banks are taking on credit risk…….they can’t take on a lot of yield curve risk.

    A steepening yield curve, in this environment is a sign of fear. Sure, rates go down now, but what kind of Dollars do I get paid back with in 10 years…..or do I get paid back at all?

    • yraharris Says:

      Shocked–tell me your time frame and then we can discuss mine is of a short duration but await yours and when I say short for a year

  5. Michael Temple Says:

    Just like that, you will need to write a new update.

    Fed is ALL IN, BABY

    FF slashed to Zero
    QE5 $700 BN
    USD Swap Lines
    Drop in Discount Rate of 125 BP

    The only thing he didn’t do is announce an actual cure for Covid.

    Going to be a WILD WILD WILD OPENING


  6. Fred Kingery Says:

    A comment from NZ. I am a US citizen and live in NZ part of the year . NZ’s largest export industry used to be dairy product ( powdered milk ) but last year the Tourism industry became the county’s largest exporter. Saturday here the PM in effect closed the border to all tourism by imposing a 14 day self quarantine for anyone entering the country from anywhere ( the only exception was a few small south pacific islands ). Point is that hit to the NZ economy was big … hence the RBNZ responded in kind. There have been only about 6 confirmed cases of the virus in NZ so far. No doubt that will change as things develop. People here like everywhere are nervous.

  7. Michael Temple Says:

    Time for you to update with another blog entry

    Fed is ALL IN, BABY

    FF slashed to ZERO
    QE of $700 BN
    Internationally Coordinated USD Swap Lines
    Discount Rate Dropped to 25 bp
    Reserve Requirements dropped to zero for thousands of banks

    Only thing missing is the cure for Covid

    Everybody will be watching S&P

    But, I will be watching

    1. FRA-OIS
    2. DXY
    3. Shape of Yield Curve


  8. Michael Temple Says:

    So far, so good
    DXY down 70+ bps

    Going to be a LONGGGGGGGGG NIGHT

  9. Michael Temple Says:

    Early indications are not good from overnight S&Ps
    Down 50ish right now, and bouncing all over the place.
    Wasn’t quite sure it deserved to soar, but didn’t think
    it was going to drop 2%.

    At this stage, the Fed is truly ALL IN.

    Not sure what more is left in their arsenal unless Congress passes
    emergency legislation to allow Fed to own stocks and bonds.

    Clearly, Fed is more concerned about crushing FRA-OIS levels lower
    and getting DXY rolling to the downside.

    But, still, the Feds didn’t want to see S&P down 2% and gold up 2% as the first trades out of the box.

    I will reserve all short termj udgments on gold for now. Gold was a source of liquidity last week and got sold with everthing else.

    Longer term, I think gold’s lodestar status has never been stronger. But, in a panic, you certainly cannot do much with your gold.

    On the other hand, if it just sits still while all else around it collapses, it will have served its purpose.



  10. Richard H Papp Says:

    Yes, in a secular bear market thee who loses the least is the winner!

  11. David Richards Says:

    Actually, earlier this weekend, before the rate cuts by the RBNZ and the Weimar Fed, the BOC also announced a surprise inter-meeting emergency rate cut, in view of the Oil Price War and the go-to excuse of the virus.

    Friday night, the BOC cut 50 bp to 0.75% (it had been 1.75% just ten days ago). It wasn’t enough. As the panic cut by the Weimar Fed now leaves the loonie dollar as the major HIGH YIELD currency at 0.75%

    The good news for greenback holders is that before long, it could be more economical to wipe their backside with one-dollar bills than with toilet paper that’s currently in short supply anyway.

    • yraharris Says:

      David–unusually fired up tonight or morning for you—are you still in Singapore –what is unfolding is everything we have discussed for years regardless of how the trade directed us–the central banks have capitulated to the rigors of sustaining fiat currencies as credibility fades away

      • Michael Temple Says:

        If CBs try to rescue Fiat currencies and succeed, doesn’t gold simply explode to Infinity and beyond?

        Not tonight and not tomorrow and maybe not even next quarter

        But if the Fed throws tens of trillions (yes, tens of trillions), and solves this crisis, what is the value of a US dollar in the coming year(s)?


      • David Richards Says:

        Yes Yra, their lost “credibility”… ‘cept one can’t lose what one had practically already lost. And yep, a little hot under the collar here in sunny Sgp.

        I wonder whether Powell is more afraid of some disinflation or Trump??

        Seriously, I’m pretty sure Jay Powell is going thru the same thought processes that Rudolph von Havenstien did before:

        “Von Havenstein faced a dilemma. Were he to refuse to print the money necessary to finance the deficit, he risked causing a sharp rise in interest rates as the government scrambled to borrow from every source, that would, he believed, bring on a domestic economic and political crisis, which in Germany’s current fragile state might precipitate a real political convulsion. As the prominent Hamburg banker Max Warburg, a member of the Reichsbank’s board of directors, put it, the dilemma was ‘whether one wished to stop the madness and trigger a revolution,’ or continue to print money. Loyal servant of the state that he was, Von Havenstein had no wish to destroy the last vestiges of the old order.” So he printed. With, in the exact same words as Powell today, “no cap on asset purchases”.
        – Lords of Finance, pg 125

      • Michael Temple Says:

        As Yra has said (along with many others) we live in a Fiat world. There has been no gold standard since Nixon closed the window. Yet, here we are nearly 50 years later and gold has gone up 50X from $30 to $1500.

        You are absolutely correct to cite that passage from Lords of Finance.

        Powell (and all CBs) have NO CHOICE.
        Our normal everyday society, and the normal guy on the street, has no conception about the “forest from the trees” debate about QE, FX swap lines and now, almost assuredly, some MMT.

        He/she simply want to know that they have a job and that they can buy their groceries and pay their bills.

        There are no more bond vigilantes left to chastise the long end of the curve. Regardless of how inflationary any of these monetary actions will be, the Fed will be there to buy the curve ala BOJ, who practically owns the entire JGB market.

        Powell et Al are going to flood the system with tens of trillions. TENS of Trillions. Whatever it takes.

        Stocks may not fall as much as many think.

        But sometime somewhere in the not too distant months, especially if markets and society survive Covid (I think we do), I think gold is going to capture the attention and imagination of serious investors.



      • David Richards Says:

        Michael, I suspect that US stocks falling would indeed likely be the proverbial false move. As seen before with ZIRP and QE. Another closer analogy today for US stocks is what stock prices did in Venezuala and Argentina recently. Performance in nominal terms.

        I guess you’re right that the Fed is trapped between a rock and a hard place. As they have no control over gov’t overspending and they feel compelled to “finance” it. It’s also a problem in repo as I’ve tried to explain before in that the fake funds rate has decoupled from the real interest rate demanded by foreigners and investors, in part to accept the risk of currency devaluation and/or soft default (or equivalently, currency devaluation). So the PD’s etc who are already maxed out to their regulatory limit disengage in favor of obtaining higher interest rates elsewhere on dollars. Probably not a problem if gov’t ran a balanced budget and had little-to-no accumulated or annual deficit. You know, the stupid old ways.

        But alas, the political belief or want-to-belief today in most places is that deficits don’t matter. AYK, that’s a core assumption behind MMT which as you mention is coming (or already here).

        So what’s next? After this ZIRP and liquidity injections without daily/weekly caps. MMT helicopter money for the ppl?

        PS. Just for the record, note a recently announced US$1400 per-person helicopter money in HK isn’t MMT because it’s entirely financed from their net accrued surplus of US$1.3-trillion that HK still holds, rather than being funded from debt or money printing. Altho, dollar-pegged states like HK may soon have to print as they import Fed monetary policy. Thus HK real estate might be an even better bargain than gold, recalling what was seen during previous Fed QE years. Actually all real estate might do well. If so, I imagine that wannabe-homebuyer millennials are gonna be peeved if they figure out what’s going on. My observation is that some are already very angry at last week’s Fed cut, as some have learned from recent years, rate cuts light a big fire under house prices, rapidly pushing houses out of their financial reach, rendering their dream to own even more unattainable. This growing inequality is IMHO sewing the seeds for major civil unrest and crises ahead.

      • Michael Temple Says:

        If real estate does well, gold does really well.

        Good point/distinction about the HK NOT MMT.
        I had not considered that.


      • Judd Hirschberg Says:

        Have to be careful with the Gold. Many of the Gold /FX spreads are vulnerable on the qtrly charts.

      • Michael Temple Says:

        I am not opining about gold’s direction in the next day, week or even month.

        Anything can and will happen in these turbulent markets. I am speaking about a time frame much beyond the next month or two.

        Yes, that is light years away right now


      • David Richards Says:

        Haven’t seen the physical price, especially 1-oz silver, coins, so hugely bifurcated from the paper price in years. Like $18 vs $12. After all, paper contracts come with settlement in paper currency and force majeure, no metal.

        Wonder whether some banks may not exist much longer? Think authorities will use the CV as an excuse for a holiday, when in fact some may have failed? Brokers too.

      • Michael Temple Says:

        I am not so sure that any of the US banks are in dire straits.
        Maybe a European one or two, but not US.

        Banks have really taken down their prop trading desks and no longer
        carry large inventories of bonds for their customers.

        Yes, their loan books will soon be taking a hit….But, again, I think their solvency is not in question.

        Stock market decline is much more to do with investors trying to price in the proper level of future profits now that we will hit an economic recession this quarter. Is it a 1 or 2 quarter phenomenon?
        Or, does it last longer?

        The answer lies with Agent Covid. Simple as that.

        I really do think stocks are trying hard to put in a bottom. Your guess is as good as mine…..Real constructive positive price action probably
        only occurs once Covid cases peak. The experts are saying that is at least until late April/May. So, 5+ weeks of great uncertainty, which
        can definitely see stocks “crash” further.

        But, the key key key (to me) is whether the Fed and CBs can corral
        the extraordinary VOL in stocks and bonds and OIS-FRA swaps and DXY.

        Let Dr Fauci fight the good fight against Covid.
        Jerome and Mnuchin need to keep feeding all manner of IV liquidity
        to markets to reassure folks that as many trillions as you need to
        keep the plumbing moving, we’re here to provide it.

        Need another $5 Trillion? Here it is

        Need an immediate payment of US payrolls to all small businesses temporarily shuttered due to lockdown orders, figure out a way that
        these businesses can get electronic funds ASAP.

        Wash Rinse Repeat As Necessary.

        Wash Rinse Repeat As Necessary

      • David Richards Says:

        Yes, I know, for the most part, I’m thinking about a bank or two in europe and some relatively obscure countries. But who knows as banks are so opaque. Ratings agencies are generally lazy and worthless. So if I ran a bank, I’d not trust any other bank. That is not good.

        That is why people in Europe won’t sell a property, I’ve read, because they’re afraid to have the funds in a bank. Individual countries have bank bail-in laws and no printing press, etc. Perhaps this is partly the reason for the bifurcation between metal coins and the quoted paper price. If I sold that property, I’d rather have the coins than the bank deposit. And that’s doable in some places that retain a gold culture, especially Asia. People can and do settle a property in terms of physical gold ounces. That’s what rich people own. Land, property and gold. No bonds, no dollars, no IOU’s. And there are numerous physical gold exchanges, where nobody looks at the comex price. Way it goes. I believe the Shanghai exchange is by far the largest gold exchange. Combine the affinity for gold, the ubiquity of digital payments and the fintech prowess, and it’s seen how the gold-backed digital currency should be here fairly soon…maybe 2021? It’s being worked on right now.

        Physical cash settlement for the house would be ok too as that’s not banking it, and then you convert the cash to something real, but it’s illegal in Europe to hold physical cash above some ridiculous amount. Like if you have more than 3,000 Euros cash, then they figure you must be a dope dealer or something so good luck depositing that in a European bank nowadays. It’s really about the taxes tho, not that you’re dealing dope. By all means, deal dope provided you declare your full profits and pay tax on them. I kid you not.

        Covid19 has largely passed. China is reportedly 60-70% back to work, up from 10% or so recently, and the air is foul again. Funny when people are wanting and happy to have air pollution. LOL. The air is bad here again too; we mostly blame Indonesia.

        Covid19 seems almost old hat, boring topic in Singapore. Passe and nobody died, yay. But malaysia is just entering a crisis now. Almost 600 cases, up from 20 two weeks ago. About 90% have been traced to some big religious gathering of twenty-thousand people, so expect thousands more I’d guess. Most Singaporean cases were traced to church group(s) too. So two lessons from this: avoid groups and places of worship for whatever reason. And the heat apparently has no effect on the disease spreading as Malyasia’s current outbreak is happening in the most hot & humid time of year, like 40 degrees. I think they just announced a partial lockdown today, perhaps the prelude to full lockdown.

      • David Richards Says:

        Michael, I jinxed it saying, “Covid19 seems almost old hat, boring topic in Singapore. Passe and nobody died, yay.” Nobody died but…

        Unfortunately, reports say that Singapore just had its two worst days yet for new cases with 17 new cases per day in this new wave. Despite it being the very hottest time of the year with high humidity and daily temps of 36 (97F). SARS-COV2 has now mutated into two different strains with the second wave stronger. You can definitely catch both strains in succession, or heaven forbid simultaneously, as they differ. According to Armstrong’s public blog, his best medical source says that as a result, “a more lethal version could evolve for the 2021/2022 flu season”.

        Neighbouring Malaysia, also very hot and humid, rapidly soared from 26 total cases a couple of weeks ago to 700+ total cases now and began lockdown today, with foreigners unable to enter and locals unable to leave or move between states.

        Some good news is that someone reliable I know who owns an advanced microelectronics manufacturing company here said that after an outage of two months, specialized semiconductor components are finally available from China again as they’re working in both Shenzhen and Shanghai again. I also ordered some JBL audio equipment online from China yesterday and today it’s already in transit. Previously, posters were complaining as their orders had sat in limbo for many weeks.

        Anyway, I corrected myself above and won’t say more unless asked.

      • David Richards Says:

        “Coronavirus has mutated into more aggressive disease, say scientists” – The Telegraph (UK), 5 March 2020

      • David RIchards Says:

        Yeah most elliott wavers have gold going triple-digit. Many are hardcore deflationists. I expect inflation and that any deflation will be a limited head fake, the always-necessary first false move. I can draw an EW chart with gold going 2000+.

        I believe a determined gov’t can easily defeat deflation, but notnecessarily inflation. Sadly, the fed believes the opposite. Listen, print 33-trillion dollars with Ctrl-P today. With that, tomorrow give all 330-million Americans, including kids, $100K each with the provision it expires worthless in ninety days. Then betcha see some inflation? MMT helicopter money baby, it’s coming… BOOM!

      • David Richards Says:

        Hi Judd, to clarify, I think that’s a good point about the chart, as I agree it looks shakey even on the daily chart, having closed below the daily low of the previous swing low. My last post, I was just expressing that the EW consensus is bearish gold but there exists an EW alternative with higher gold and, like Michael, I’m also looking long term, in the belief that once this deflationary shock phase passes, an inflationary surprise may lurk later. Spurred by broken supply chains, shortages, inflationary CB & gov’t policies and so on… World trade is different today than when they last did ZIRP/QE so this time I think it could ignite inflation, especially in the states… BICBW as I often am.

      • Michael Temple Says:

        David and Judd
        Regarding the part of lurking inflationary pressures and unintended consequences of the many head-spinning actions taking place daily, I would highlight to you the following dramatic EXPLOSION in charter day rates for oil shipping vessels.

        In fact, would you believe me if I told you that despite the economic recession we now find ourselves in, with many parts of the globe now undergoing shutdown, rates for ocean going oil vessels have EXPLODED between 6X-9X

        Let me repeat myself. Up 6X-9X. VLCC day charter rates have moved from $35,000 to over $200K, with some reports of $300K rates.

        I will buy you or anybody who can tell me what lit a fire under these rates. No cheating, please. Do not use Google for the answer.

        My point? A key shipping rate defied “all logic” of an economic recession and just went parabolic. Thankfully, there are no derivative instruments of shipping rates, as some algorithmic genius would have figured out how to short it on triple leverage and would have been entirely wiped out.

        You will be amazed at what the trigger was?

        Hint….It is not Covid related shortages

      • David Richards Says:

        Yeah, good one. Kuppy has been all over tankers for some weeks or longer. A good read:

      • David Richards Says:

        Yes, as we’ve discussed – diversified physical assets. I mighta thrown btc in there too, if so, oops, haha. Problem is, like gold, they securitized bitcoin. We want physical. Physical gold. Good luck trying to buy it in size at 1500 or whatever. Same for getting physical silver in size at $14, lol. As u already know I’m sure. Nuff said.

  12. masterblaster1978 Says:

    Does anyone remember the panic in 2017-2018 when the seasonal flu killed approx. 61,000-80,000 Americans even with a vaccine available? Or when 67 million Americans got the H1N1?

    Neither do I…

    I cannot wrap my mind over why the panic now?

  13. David Richards Says:

    S&P 500 futures reversed from a large gain to locked-limit-down after emergency Fed cut. What a group of morons who never traded a day in their life. Overpaid government employees, “We’re here to help”. Yikes!

    In an interview on Real Vision Pro on Friday, they asked repo and eurodollar system expert Jeff Snider what he would about the Fed if he were President or put in charge of it? His answer: First, fire every single one of them there. Honest!

  14. David Richards Says:

    The FOMC meeting planned for this week March 18-19 has been cancelled in favor of some early golf to celebrate their hard work today (being a government “worker”, they get 2 weekdays off work for having gone into the office on a Sunday).

    Printer Powell also said, there’ll be “no cap on asset purchases”. Clearly he has now channelled his inner Von Havenstein at the Weimer Fed in order to fund the Weimer US gov’t spending.

    And as European currencies renew their surge after a short-lived correction that turned at key levels, I wonder whether Lagaarde wishes she could get an ECB meeting do-over? Well, instead she could also engage in US-like currency dilution inter-meeting as well, to counter the US currency manipulators. Wait and see after EURUSD reaches say 1.18-1.20 as it likely will sometime.

    • TraderB Says:

      Mike- If DXY strengthens overnight, and Libor OIS widens. And the Fed needs to provide more liquidity for all the trillions of dollars of global deleveraging… How many trillions is that? How much debt do you think the Fed is going to need to buy here?

      • Michael Temple Says:

        Trader B
        The answer is it will take as many trillions as it will take.
        I mean that quite seriously. Failure is not an option.
        They are already at $5 Trillion and counting.

        Previous offer about the shipping rate story.

        I will buy a cup of coffee for the winner. Please, no googling

      • David Richards Says:

        Oh, I disqualify myself as I’d already read of it. It’s a good point. And in the bigger picture, it feels like the 1970 recession again, remember? Nobody gave much thought about the prospect for rising price inflation, if they even knew what that was. Print and spend. What could possibly go wrong? Gold standard in the way? Get rid of it! Our economists’ theories say, no worries. And AYK, it worked at first, until it didn’t, then oh-boy! But we’re smarter now, huh, lol.

      • TraderB Says:

        I had to cheat. That is pretty crazy.

  15. Pierre Chapuis Says:

    Charles Dumas talks about the the 3 D’s of getting out of a debt crises
    Default, Devaluation, Deflation (deflation of DEMAND not necessarily just price)
    With the omission of one, it will require the over reliance of the other two.

    What is the Fed most afraid of? Keeping the banks alive, correct?
    I was taught to look at the Fed as Mother hen to all the banks.

    Thoughts? I’m here to learn.

    • yraharris Says:

      Pierre–debasement through inflation is the most tried and true path as rulers have clipped the edges of metal coins throughtout the millennia—inflate your problems away –devaluation of the coin of the realm—price deflation will not do it as it burdens the debtors ever more —see Japan for the last thirty years—-usually find a lot to agree with the Lombard Street crowd but not that one

      • Michael Temple Says:

        Echoing Yra’s comments, our current Masters of the Universe fully acknowledge that we live in a fiat world, tethered to nothing.

        In the 1920s/1930s, CBs lived on the gold standard and the mantra of the day was balanced budgets and liquidate all bad debts (thank you, Andrew Mellon).

        Bernanke et al have pledged never to repeat the follies of our 1930s ancestors. Instead, we have the modern invention of the electronic printing press, where now Trillions can be conjured up in the service of its masters.

        Right now, there is a titanic struggle between the forces of chaos/deflation (as evidenced by a super strong dollar and FRA-OIS dislocation) and the counterattack by CBs to shovel $$ and Euros and yen as fast as they can at the problem.

        The Fed has already thrown over $5 Trillion of additional Repo facilities and now QE, along with slashing FF to Zip, to try to stem the tide.

        So far, the tide is still running.

        Will they fold up? Or will they soldier on with more ammunition?

        Debasement of the coin of the realm is the answer through millenia
        of world history. I don’t think it is going to stop now


      • Pierre C Says:

        Yra, Michael.
        Thank you. It’s best to bet on the side of the currency being debased, for the odds our with us when we look at history and read between the lines. I’m glad to be here on this blog, I’ve been caught in their net one too many times in the past.

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    […] LINK HERE to the Blog Post […]

  17. Chicken Says:

    $13 Silver- Thought it might happen but didn’t really expect so quickly..

    • yraharris Says:

      Chicken—time to take out the good silver for it needs a polishing—this is certainly a different world master jack as even the highly respected Carte Worth has been overwhelmed the the algo machines—–but as Victor Niederhoffer warned in the Education of a Speculator—when the elephants leave the watering hole small animals get trampled

      • Pierre C Says:

        Yra, You keep mentioning these different books, I’m going to have to build a separate library in my home.
        Really trying to keep up, lol =D

    • Pierre C Says:

      Chicken- Here is a link to a blog I follow. I thought you might find it interesting. You may have to sign up to get into this premium report (it’s free to sign up).
      I’m slowly adding to my silver holdings

  18. Jeff Says:

    The dollar keeps shaking off all the MMT being thrown at it. The bond market doesn’t like it but the scramble for dollars is unabated – up, up, up. Cognitive dissonance though as to why in the face of this gold seems to be trading as a risk asset, moving virtually tick for tick with the S&P. Yra?

  19. Michael Temple Says:

    Trader B/Yra

    Trader…You asked what it would take to stem the chaos in USD FX markets and FRA-OIS. And, I said previously that they will stop at nothing as failure is not an option.

    Today, imo, saw some HUGE market disconnection.

    While the Dow soared (which is always a good thing), the UST 10 yr got DESTROYED, finishing the day at a yield of 1.09%.

    Since its intraday high print of $110ish, for a yield of 31 bps, just last Monday, that bond has lost nearly 7 points. Don’t ask about the 30 yr….I think it may be down nearly 30 points!!

    Yet, while UST duration bets got monkey hammered today, DXY soared to another high for this move, with a 150 bp gain to 99.50.

    Ordinarily, such strength would have signaled further RISK OFF and would have created a bid for duration and probably have flattened the US yield curve. Instead, 2/10 spread gapped out to 60 bp today.

    So, I ask myself which “market” has it right?

    UST 10 yr or DXY? I don’t much care about stocks right now, as the real show is the TECTONIC movements in the trillion dollar bond and FX markets.

    I believe the following happened today. And, it dovetails with my earlier comment to you, Trader B, that the Fed/Treasury won’t stop with the stimulus measures until they deliver enough to knock out the FEAR and CHAOS in funding markets and in FX markets.

    Today, Treasury truly crossed the Rubicon when Mnuchin clearly and forcefully stated that the President wants to send a $1000 check to EVERY AMERICAN (I assume adult) in the NEXT TWO WEEKS to address the current demand shock as unemployment is set to SOAR with all the shutdown in all manner of jobs.

    MMT is here!!!! I think that PSYCHOLOGICAL BUGLE BLARING finally woke up the UST bond market that duration bets are no longer
    a sure thing, even if we have a doozy of a recession for the next quarter or two or even three.

    Why? Because the Fed/Treasury are FIGHTING A WAR against Covid. When we fought WWII, NOBODY gave a fig about the tremendous deficits we ran. Hitler had to be defeated. No price was too great, including not just treasure, but the blood of our sons and fathers to SAVE THE WORLD.

    I daresay we have reached a similar economic moment. FAILURE is not an option.

    So, today, I think the bond market realized that all manner of currency debasement is headed our way to wrestle/combat this market and economic WAR.

    Yet, the USD was stronger than horseradish again, today.

    Extremely troubling….But, bond market did not react to that HUGE move.

    My thoughts?

    I think the Fed is now realizing that while all it has done since Sunday night is good, it is not centered on the real problem.

    As has been highlighted by the likes of Zoltan Pozsar, there is an extraordinary synthetic shortage of USDs in the world due to the indebtedness of foreigners in USD obligations.

    As world trade has collapsed, dollars are no longer circulating in the system.

    Furthermore, the oil shock unleashed by Russia/Saudi has further squished the amount of petrodollars circulating as oil is now 50% lower than where it began the year.

    Global daily oil consumption is roughly 93MM barrels. Prices are now down $38 based on WTI….Call it roughly the same for Brent.

    That is roughly $3.7 BN/day fewer dollars circulating globally right now. NOT AS MANY DOLLARS IN THE SYSTEM.

    Pozsar very clinically highlights that while the Fed has done right by opening up USD swap lines, they are mostly with G-7 nations, none of whom are as badly stretched for dollars as other nations.

    HIs point is well taken, as most EM currencies continue to weaken dramatically against USD. Yes, EUR and JPY capture the daily headlines…But Mexican peso and LatAm currencies and SE Asian
    currencies are all going down against USD.

    So, look for the Fed to activate even more USD swap lines with these critical debtors. Again, we are talking trillions more.

    We also hear suggestions from Wall Street that Treasury should re-activate TARP programs, starting with a $2 Trillion suggestion by Scott Minerd of Guggenheim, to pump money directly into wounded
    companies, much like the 2008/09 TARP monies went directly into the insolvent banking system.

    If they succeed in providing the necessary additional TRILLIONS to backstop all these FOREIGN USD obligations (JPMorgan states
    the figure is as large as $12 Trillion), then DXY will finally roll over, and I believe make a beeline way way lower. WAY WAY LOWER.


    Here is how I view the future….It is rather binary.

    EVERYTHING, and I do mean EVERYTHING. depends on the trajectory of Covid here in US and Europe.

    If If If Covid rages far worse in Europe and US than in China and lasts for 4/5/6+ months, then we are in for a heaping lot of trouble and nuclear winter could settle upon our economies with no V-bottom, but rather a very elongated U-bottom. God forbid it is L-shaped.

    Nothing but short term USTs will work.

    But, if the radical social shuttering that is now in place in growing parts of our country does in fact, blunt the worst of Covid, such that
    we experience something less horrific than Italy, but not as good as say Singapore and S Korea, markets will begin to recover in anticipation of business slowly coming back online in June/July/August.

    If we are so lucky and blessed to travel that pathway, I think the implications for USD, yield curve, and gold are EPIC.

    DXY heads to 90, easily.

    Yield curve steepens dramatically. Fed will help cushion the blow with its newly activated QE program (currently $700 BN, but there
    really is no limit).

    And, with TRILLIONS still sloshing around in the system, I firmly believe that gold resets so so so much higher.

    The coin of the realm will have been debased, and frankly, that is what is necessary to save the system from collapse.

    As Yra has pointed out, we will NOT liquidate the bad debts out there. We will recapitalize our Fortune 500 companies and lesser ones. We will do our best to save local businesses, but probably not nearly enough.

    QE will run FOREVER. FF will stay at ZERO FOREVER.

    USD swap lines will remain for however long it takes to keep dollar funding in line.

    Maybe Repo Facilities and CP programs diminish as conditions ease.

    But trillions of dollars will remain within the system.

    And as we will have survived, MMT will become officially enshrined as a worthy policy tool for fiscal practioners.

    GOLD? First stop $2000 (the old high, basically)
    Could happen by the summer time, again assuming Covid is brought to heal and the economy can slowly get back on its feet.

    Thereafter, I think any price is imaginable.

    As for other commodities, they should rise, too. Although maybe oil
    is still gripped in the Cage Match Battle between MbS and Vlad.

    Does silver catch a monetary bid? Logic would suggest so.

    But, then again, who among us thought that gold/silver ratio would blow out to 120ish, a huge new high.

    Reversion to the mean would be wonderful….I think the mean is somewhere near 65ish…..I am in no way shape or form prepared to
    venture any guess as to where silver ultimately reprices alongside gold.

    Maybe it only really rallies when gold sets new all time highs and folks realize that gold at $2000 makes silver look damn damn cheap in the high teens.

    Again, that gold outlook is predicated entirely on Covid being contained. Otherwise, you can’t much eat gold or use it for your posterior, which is what most of us are principally focused on right now as you can barely even find a parking spot in a grocery lot, let alone expect to find all your shopping goods in stock.

    Buenos Noches

    • GreenAB Says:

      I think you´re spot on when it comes to Treasuries. I poited out the same a few days ago. Yields are going to go way up. With every day economic capacity (which backs the Treasury!) is getting destroyed. At the same time the bailout costs are rising into unseen dimensions.

      As for USD: in a globalized world everything is relative. I don´t necessesarily see the Dollar weaken just because of the the proposed bailout programs. Maybe the market pricesthat the US will be the strongest of the weak…

      • GreenAB Says:

        Addition: If they can´t contain long term yields at current levels – that would be the perfect storm and the catalyst for a much much deeper dive…

    • David Richards Says:

      “If we are so lucky and blessed to travel that pathway, I think the implications for USD, yield curve, and gold are EPIC. DXY heads to 90, easily. look for the Fed to activate even more USD swap lines with these critical debtors”

      Michael, I agree with what you wrote here and elsewhere. But I don’t understand the Fed’s rationale for chosing those nine extra swap lines that it chose. Do you?? Because except for Brazil, Korea, Mexico, they’re all small countries with relatively small dollar debts I’d imagine. Why not India, China, Indonesia, Saudi, Russia, Turkey, etc? They’re all top G20 and surely altogether are very “systemic”. But denmark, singapore and New Zealand?…lol.

      As for DXY, as it cracked my previously-mentioned 100 key level (no such thing as a triple top), that invalidated my previously bearish stance, proving me wrong, so I flipped bullish USD. The next target next key target level became the 103.85 multiyear swing high set 3 years ago. These markets moved fast and it already essentially almost reached that target early Friday. Will see whether we next get a partial retracement/correction of the DXY run from 94, or else a quick breakout at 104, as eventually should happen one way or the other. Longer run, after this bullish DXY detour, I agree DXY still heads to 90, and lower. But it may take quite a while first, or not if events turn fast per one option you laid out.

      • Michael Temple Says:

        You could be right about USD…But, it is the last thing the authorities want to see. So, while the technicals are suddenly bullish, if the underlying economic collapse finally bottoms out as (hopefully) Covid hopefully bottoms out, then the extraordinary bid for the USD should quickly recede

        We shall see


      • David Richards Says:

        Michael, yes and AYK the dollar bull is a sign of liquidity tightness and/or scared capital in flight.

        Indeed DXY is likely to be a parabolic surge and collapse as the crisis recedes… but when? I think CV might get worse in US like Italy now and China in Jan-Feb.

        In the past, the TED Spread, which currently is also somewhat parabolic, has traditionally broken its parabola before the DXY parabola, so TED could cue the dollar. Which then of course cues risk assets.

        Technically, we need DXY to crack 104 or else risk a double-top from now and 39 months ago. My base case is dollar breakout higher but I’ll let price guide me. A break below the last swing low below 95 would clearly be bullish invalidation.

        Currently, short-term Eurodollar interest rates in Singapore and Europe are the highest they’ve been in many months, despite the Fed going to ZIRP. If it’s similar in the US for consumer rates or term deposits, then the Fed has lost control of the price of money, which they’ll be unhappy about and will likely address with printing until short-term rates fall in-line with Fed policy rates.

      • David Richards Says:

        Well, that new “printing” came ten minutes after my last post above. Suddenly open-ended QEternity starting with $125B per day? And perhaps little fiscal stimulus deal then? If so, it’ll be the opposite of EU’s new approach, interestingly.

  20. Pierre C Says:

    There are so many moving pieces that one could fill a book, several books. You have done a wonderful job of scratching the surface.
    I think human nature will adapt.
    I work at a hospital, we are rationing out everything already: masks, air lines, gloves. Bleach wipes are going under lock and key. Business is on top of this (the best that they can be). ICU is only allowing visitors twice a day for 30 min time span. It used to be all day. Too much to mention here, but A LOT is being done!

    I think I will take my $1000 and trade in for some silver.
    It reminds me of Louis Hughes’ autobiography, “30 Years a Slave”
    When he was “semi-free” after the Civil War, he was able to make some money quote:
    “Of course this was all rebel money, but I was sharp, and bought up all the silver I could find.”

  21. Chicken Says:

    If I understand correctly, the plan entails backstopping corporations who chose to gut their balance sheets in order to buy back stock which, BTW, is now wasted capital.

    • David Richards Says:

      Yeah, lol. Buybacks encouraged by policymakers. Anything to prop up “stawks” and to fairly compensate ceo’s. Who are worth every penny of their nine-figure comp pkg as cramer said on national tv.

  22. asherz Says:

    Ambrose Evans-Pritchard has stripped away all the hogwash being promulgated by the “experts” in the link below and tells us what is to follow, prescriptions that were unthinkable before 1987. Fed malfeasance has caused the disappearance of pricing mechanisms in bonds and monstrous equity and real estate booms ($238 million apartments) that has led to what is now happening with frightening rapidity. Gradually and then suddenly. History will not judge Green, Ben and Jan kindly. What this means for fiat currencies is now ordained.
    The future store of value will more resemble what the US Constitution says rather than the faith and credit of those who had bad judgment in guiding our monetary and fiscal policies

  23. Michael Temple Says:

    Ambrose Evans-Pritchard suggests the thesis that CBs and governments must do ANYTHING and EVERYTHING to socialize
    the tremendous losses now rippling through the economies.

    One financial bigwig was on a panel discussion last night. Moderator asked him if he thought Trump’s nearly $1 Trillion MMT plan to send a $1000 check to every American was a good plan.

    The guy said it was a nice first step, but if the Feds really want to get ahead of the situation, they need to think EVEN larger, and ramp the various fiscal stimulus efforts up to $4 Trillion. He said that at $4 Trillion, we would be at 20% of US annualized GDP and that should be enough to see us through the rough patch of the next two quarters (again, he conditioned his solution on the fact that the worst
    of Covid will be behind us in 2ish months and that the economic healing can begin thereafter as businesses slowly come back up).

    Think about that. $4 Trillion in FISCAL stimulus, on top of the already trillions in monetary stimulus, with probably more to come.

    Same theme as Ambrose…..Failure is simply not an option.

    The fact that stocks are down again ovenight, with S&P below 2400, and UST 10 yr yield is now slightly higher at 1.12% vs last night’s close of 1.09% again tells the story.

    Are the bond vigilantes back?

    The 60/40 guys got crushed yesterday on their 40, while their 60
    rallied back to 2500, a level that was still quite ugly.

    Today, the 60 is down another 3+% and the 40 is actually slightly down.


    Gold remains the plaything/play toy of the margin clerks, as continued selling likely reflects more forced liquidation.

    Yet, when the dust finally settles at whatever SP level after the CBs save the system (I do believe they save the system in the end), will
    investors still believe in the 60/40 model.

    Might some portion of the 40 find its way into one of the very few assets that has largely escaped evisceration here in 2020 (the other being short duration USTs)….Gold, that is

    In the competition between USD and Gold, are miners or CBs electronically conjuring up trillions and trillions of additional gold ounces like they are with their USD operations?


    Prepare for another Wild and Woolly Ride today in markets

    Breathtaking VOL, to be sure.

    And, to add to overall economic woes and story lines, the NYC MTA (subway/commuter trains/buses) is asking for a $4 BN bailout as revenues have PLUMMETED with subway ridership down 60% and commuter lines down 90%. Yet, they can’t close the subways because while white collar workers can telecommute, critical workers
    such as healthcare professionals, police, fire, DPW etc etc still need
    to report to work.

    So, while the headlines focus on airlines and hotel and restaurant associations asking for bailouts/assistance, the Feds almost certainly have to bail out our major metropolitan subway systems to allow
    emergency and critical employees to get to where they are needed to keep the water and electricity and the hospitals going so we can at least go buy groceries, buy our RX meds, stay heated in our homes, and lastly, be able to get to the hospital if Covid comes our way.


  24. asherz Says:

    The Central Bankers have been for some time and now even more so, on auto-pilot. They cannot stop the Gutenberg contraption because if they do, the house of cards collapses. The music is spinning faster and faster, hundreds of millions to billions, and billions now to trillions. Digital numbers that soon will have no meaning. A tragedy unfolding before our eyes.

  25. Michael Temple Says:

    You are surely right…Digital numbers that, FOR NOW, have no meaning.

    But, when the dust finally settles, and level-headed investors scour
    the investment landscape, I think the logic of gold will never be more self-evident.

    We are clearly in a deflationary bust FOR NOW as we are globally hunkering down in our bunkers while Agent Covid stalks the land.

    Yet, USTs have finally “gotten the memo” that governments will simply NOT allow financial shibboleths prevent them from saving the world….

    We went from “Will the Fed cut 25/50 to two intra-meeting emergency cuts that brought down FF 150 bp to ZERO”

    We went directly to QE from the NOT QE of last September

    We now have limitless REPO facilities

    We have lowered the discount window borrowing rate to 25 bp

    We have USD swap lines (which probably need to be extended beyond just the principal G7 counterparties)

    We now have the Fed backstopping CP market.

    But, when we do get to the other side of this COVID nightmare, a large swathe of these financial and monetary stimulus programs will NOT be fully retracted, perhaps not for years.

    At that future time, which is decidedly NOT NOW, all those digital TRILLIONS will have meaning.

    DXY likely to be in the 80s, not challenging 100
    UST 10 yr closer to 2/3%, not Naught.

    S&P could be just about anywhere, quite frankly, especially if Congress confers upon the Fed the ability to buy stocks and bonds.

    But, gold, quite frankly, has a stunningly rosy outlook as the coin of the realm will have been truly debased.

    But, NOT NOW, as you correctly say

    • asherz Says:

      Michael-That’s why I mentioned the US Constitution. Article 1 Section 10 says: “…make any Thing but gold and silver Coin a Tender in Payment of Debts.”
      A new currency backed by gold will emerge as existed prior to 1933. Any other substitute that is fiat paper will no longer have credibility after the current madness ends. Remember, the average lifespan of paper money is about 40 years. We’re 9 years past that now.

  26. The Bigman Says:

    Hi The DXY in my naive understanding is a measure of relative value with respect to the other fiat currencies. For it to go to 80, the euro, british pound and/or yen must increase in value- just don’t see that happening those countries/EU Central Banks are all in the same tarpit as US. I agree with Asherz, Bretton Woods 2.0 will come sooner than we think. Agree with GreenAB the Treasuries are the canaries in this coal mine. Seniors are getting crushed with respect to their nest eggs especially if bonds soar. My concern here is that the cure may be worse than the disease. The human damage from the destruction of our economy IMO have not been appropriately factored into these extreme measures by the public health community. We definitely can not continue these measures for a prolonged period without stark unintended consequences. A more limited quarantine for those at high risk will be necessary and we need to pray that one of the anti-viral drug trials is successful.

  27. Michael Temple Says:


    Good Morning

    The news flow is simply staggering, as we struggle with both Covid and financial PANIC

    While I cannot and will not predict when and where stocks bottom, I think the coming
    rally will be FACE RIPPING,

    So so much of End of Days is priced into the market. Yet, if just some small things
    should go right and help eliminate the WORST FEARS of END OF DAYS due to Covid,
    financial markets will reflexively ease, as well.

    Among the potential positives are the following

    1. Continued Re-Opening of China….Mission Accomplished

    2. Possible Peaking in Italy and the fact that not one fatality of anybody under
    the age of 30…Sorry, none of us fall into that youthful category any more.

    3. Gilead news today, supposedly, of an FDA-approved drug.

    Funny, but we now should probably look more to the FDA than to the FED.

    We all know nothing cures low prices like low prices, and the same for high prices.

    How long can VIX truly remain this elevated, especially as the explosion in VOL has
    created countermeasures by the monetary and fiscal authorities to rescue the economy.

    In just the past 12 hours, ECB has launched a $1 Trillion dollarish QE
    Fed just upped today its QE purchases to $75 BN, a figure that is higher than the monthly
    QE the Fed did way back in 2009
    And, Fed just announced nearly $500 BN in USD swap lines to 9 EM CBs.

    If that is not enough to stem dollar demand, they will surely double and re-double it to slake
    the seemingly unquenchable thirst for dollars.

    Other thoughts

    Stocks….When we come out of this sell off and stocks rally, Happy Day Will Be Here Again.

    But, here is the thing….How many companies will never fully recover….I highly doubt the consumer
    is going to go on a spending binge after the shock of these past several weeks to their employment
    and to their 401Ks.

    So, while stocks will recover, will BA ever reach $400 again. F get back to $9
    GM get back to $30….And on and on and on…
    Yes, probably the cult FANG stocks come close to recovering most of their losses as they continue
    to show unbridled growth.

    But, otherwise, stocks may never reach their giddy heights of early 2020.


    I’m for them. We simply cannot allow Boeing, the airlines, the hotel industries to implode and disappear.

    But, I sure as hell hope that the conditions of the bail outs are NO MORE STOCK BUYBACKS EVER and
    that Labor and US Treasury get board seats to ensure no future shenanigans EVER AGAIN.

    While we’re at it, let’s not waste the crisis. To Keith’s point, let’s outlaw all VIX/gamma products/3X levered
    products from the markets…Pure gambling vehicles. VIX is NOT an ASSET. It is literally a derivative of price
    action, not an actual thing, itself…..Eliminate it as a trading vehicle so that the Citadels of the World don’t crush
    it like a plaything as they have for years.

    Other thoughts

    This guy is a thoughtful money manger out of London.
    I agree with his overview that, if nothing else, a global financial reset is coming.

    He makes the very simple observation that bond rates (long ones, anyway) have to rise as an avalanche of
    government borrowing is soon to arrive. Heck, just this morning, Treasury is now discussing selling 25 and 50 year

    His very simple thought is that in this new reset, we are quite quite likely to see a return to the financial world of the 1970s
    where stocks and bonds simply both did not work.

    I tend to agree….So, where does that leave TRILLIONS of dollars to go that are currently invested in levered 60/40 strategies
    or passive equity accounts where the belief is that stocks always go up, so why should I pay some silly active manager to try
    to outdo the rising tide.

    All roads lead to gold, if you ask me. Not today and not tomorrow. But soon, as in within months.

    US now has NEG rates in T-bills. Yield curve is widening….If If stocks are setting up for some EPIC bear market RIP, VIX
    should plummet which might finally relieve the pressure on DXY/USD which might soon lose some momentum now that the
    Fed has opened up critical dollar swap lines to EM CBs.

    As for gold stocks, they may be even better than gold.

    A. They are stocks and folks still prefer stocks to commodities.

    B. Their product is not “consumer facing”, so they won’t fight the same challenge as most consumer related companies
    whose products and services may never quite fully rebound.

    Yet, the world just might clamor for a lot more of what the miners are selling….Gold.

    But the Blain observation above really struck me…..Covid has precipitated the Global Financial Reset as we have
    now crossed ALL boundaries of orthodox monetary and fiscal shibboleths.

    US stimulus package could approach 20% of US GDP…..20%

    Nobody, including bond vigilantes (who dey?) is going to say HALT to a WARTIME GOVT.

    Agent Covid must be defeated, and he shall.

    Do long bond rates soar? I am just not ready to go there. Why?

    Because the front end may stay pegged at ZERO/NEGativish FOREVER. 10 yr at 2%ish is rather steep.

    OK, maybe it gets to 3%…But much beyond that, and the math doesn’t much work for the US. So, the FED
    will go “BOJ” and simply own the yield curve.

    Sayonara DXY. Hello Gold.

    I think markets begin to discount this new world order by early summer as we hopefully have recoverd from
    the BLACK DESPAIR both in markets and in society towards Life In The Age of Covid.

    With that, I will yield to the floor.

    After all, Mr Market has a way of making fools of us all.

  28. The Bigman Says:

    Riddle for all Vanguard Municipal Bond ETF(VTEB) NAV is 51.18 Now trading at 45.74 Why this huge discounting for investment grade munis According to my son-in-law same thing happened in great recession with eventual return to NAV ????

  29. Arthur Says:

    According to Stanford Professor John P.A. Ioannidis, the new coronavirus is no more dangerous than some of the normal coronaviruses, even in older people. Ioannidis argues that there is no reliable medical data backing the measures currently decided upon.

  30. The Bigman Says:

    Just checked APMEX and Kitco for premium on physical Both out of stock for gold and silver coins APMEX selling silver eagle mini-Monster box for 12.50 per coin over spot! I’d say there is a disconnect between paper and physical markets. Have never seen this before

    • yraharris Says:

      Bigman –the first time I have ever seen this.When the Hunts were cornering the silver market it was the small investor that brought them down as they were selling into the rising market bringing all the silver out of the attic and to the smelter—-the hidden supply helped to curtail the Hunt corner as well as many other large producers hedging future production—-but it may be time to buy investment grade bullion especially silver dollars with historic relevance–Waiting for the Chinese to offer to swap their overpriced US Treasuries for underpriced Bullion it is a trade waiting to happen.The central bankers have again revealed they are employed to protect borrowers and the holders of fiat currency be damned—see Yellen and Bernanke for their past statements on the need for financial repression

  31. Michael Temple Says:

    A few thoughts as markets bounce to and fro

    For me, today may be the crossing of the Rubicon.

    The Fed is virtually ALL IN…..Only thing left to do now is to buy Junk bonds and actually equities, not just the bond ETFs.

    Fed will do $625 BN in QE this week just in UST and MBS purchases. Probably can throw in another $75 BN in other bond purchases for an even $700 BN!!

    $700 BN!!!!

    Gold may have had its own Crossing the Rubicon moment today, as well. Unlike the past few weeks when gold got liquidated as a source of margin call liquidity, today it has ROARED back to life.

    The actions of the Fed and the still likely Treasury stimulus make it unmistakeably clear that the Fed can unleash an INFINITE amount of dollars (thank you, Neel Kashkari) to throw at Covid.

    As such, gold has leapt nearly $65 today, or 4.5%

    Even silver has joined in the fun.

    We have been told that so many market moves in the past month have been 3-sigma events. Too numerous to count at this point.

    But, certainly the moves in stocks and particularly UST yields have qualified.

    I daresay that gold is probably now ripe for its own 3-sigma bullish move one of these coming days.

    Not only are trillions of dollars being conjured at the electronic whim of the Fed, but European CBs are similarly joining the fray.

    Both Germany and England have put forth QE and fiscal measures
    that currently equate to spending roughly 15% of their annual GDP.
    We even have Frau Merkel admitting that “Corona Bonds”—European Sovereign Bonds by a more prosaic name–may soon be interested to help save Italy and other greatly felled countries.

    So, it ain’t going to be just USTs that will soon be the object of scorn of international investors. Duration bunds and gilts don’t look so hot, either.

    David Zervos of Jefferies gave an interview on Bloomberg last week about the fabled levered 60/40 strategy.

    He said the following

    1. Trillions, not billions, were invested in this strategy and
    2. The strategy is now comatose as bonds–the 40–approached the
    zero bound two weeks ago when they plummeted through 1% yields.

    As of now, there is no value/hedging to be drawn from investing in the 40. As for the 60, it has self-evidently collapsed.

    The drawdown in most levered 60/40 portfolios this past month was a 8-sigma event.


    As this investment mantra has been thoroughly discredited and eviscerated, where do the trillions now go to seek returns.

    Yes, perhaps all of the 60 remains in stocks (but no longer levered, that is for sure) as a huge rebound likely lies ahead. May not take
    you back to SP 3000, but if you put your money with a smart active manager, you might be able to garner 60% gains or more. But such
    gains will not be made by everybody.

    The 40? I don’t think too many will go into the 40, as strictly defined as USTs. Yes, some will now go into IG and HY, now that risk adjusted spreads may finally compensate for the new Covid conditions.

    Still, I highly doubt that all of the 60/40 monies remain within those 2 spheres.

    The logic of gold has never been more apparent than today.

    The amount of debasement occurring before our days is EPIC. Inflation is surely baked into the cake down the road. And certainly,
    deficits will skyrocket in the years to come.

    The Jeffrey Gundlachs of the world are not going to embrace UST duration on the other side of this meltdown.

    Instead, QE Forever is our likely lot. This will be the ultimate undoing of King Dollar.

    Meanwhile, the stories abound of the big premiums between physical gold and silver and Comex.

    Silver appears to be especially extreme.

    Comex is a rigged paper game that the bullion banks et al have played masterfully for years.

    But, at some point, as sanity returns to the marketplace, doesn’t logic dictate that some smart physical buyers will turn to Comex silver as the cheapest source of silver in the world.

    The price action in gold in the past month shows (to me) that it was not so much people’s bearishness that socked gold lower. No, it was
    liquidation in the teeth of the biggest one month stock market crash since 1931.

    So today, gold sits at $1550ish. Silver, gold’s weak sister, truly got monkey hammered.

    But, if gold is now about to regain the center stage, I think she may yet put in a one-day or, perhaps, one-week price move equal to a 3-sigma event. $200 up in one week?

    Crazy? Can’t happen?

    Just as UST 10 yr yields could never touch 31 bps?
    Or 3 M T-bills now with a NEG yield
    Or the Fed in the midst of a WEEKLY $700 BN QE purchase.

    It has been a while since you spoke of your SNB dream situation.

    What if just one sly SWF decided simply to try to buy $5 BN of Comex silver and take delivery.

    $5 BN is nothing. Or maybe a Tudor Jones or Soros decides $500MM is a nice chunk to devote to silver.

    Gold seems destined for a date with $2000 in very quick order (by early summer) once the dust finally settles from this horrific stock and bond market crash.

    From there, I truly don’t see how it doesn’t continue much much higher into year end. $2300/2400/2500. Heck, even $3000 may not be that crazy when you consider the Ten Plus Trillion that wlll have been thrown at these markets.

    They say true bull markets in PMs occur only when the gold/silver ratio slices below 80…..At its recent high (low?) of 124, if silver simply rallies to take the ratio back to a Neutral-ish 80, it could almost triple from here.

    The “surer” bet is gold, as gold is money. Once it gets rolling, gold is going to have not just a whole lot of logic behind it, but an awful lot of actual buyers.

  32. Michael Temple Says:

    And just like that…….

    Gold is up $140 from Friday night.

    Trading now at $1630, it is up $110 on the year, having started at $1519.

    That is 7.2%. As oil has dropped $40 from its $65 level on January 1, that means overall energy costs for mines have dropped roughly 15% (assuming energy makes up 25% of a miner’s overall costs)

    Gold stocks remain ridiculously undervalued.

    Meanwhile, perhaps somebody at Goldman is reading your blog and trying to plagiarize.

    Goldman now calling for a coordinated raid on the USD

    I think gold is about to put in a 3-sigma price move this week. As it is, I think yesterdays’ move was the biggest price move ever, although perhaps not the biggest percentage move.

    This morning, gold is up another astonishing $78 gold. Even bigger.

    Gold was at $1700 in early March before cascading margin calls in all manner of stocks and bonds crashed its party. But, gold’s fundamentals then were solid, not ephemeral.

    Today, after the Fed declared LIMITLESS QE purchases of USTs and, more importantly, MBS (given the chaotic freezing up of mortgage finance originations), QE this week alone will be at least $625 BN of USTs/MBS. Probably throw another $50 Billion or so (look at how quaint and cavalier $50 BN suddenly sounds like) for additional QE purchases of corporate and municipal debt and the
    Fed will CREATE $700 BN in new USDs this week alone.

    At the other extreme, gold miners are now reporting temporary mine closures due to Covid concerns. NEM put 4 mines on “care and maintenance” as of yesterday.

    So, not only is there a HUGE BID for gold in the past 48 hours, the supply is not just a wee bit tapered. As for silver, check out this story of how much supply is suddenly on hold.

    2018 global silver produced was roughly 822MM ounces.
    Currently, 213MM oz, or 25%!!!!!, is currently offline throughout
    S. America.

    Now, this won’t be offline for the entire year, to be sure.

    But, let’s say the affected mines are down 2 or 4 weeks.

    2 weeks is 1/26th of 213MM or 8MM oz
    4 weeks is 16MM oz

    So, silver mining production in 2020 would appear to be at least 1 to 2% DOWN from 2018 (no full figures available yet for 2019, but assume a similarish 822MM of global production).

    As an old commodity pro, you know as well as I that when supply and demand curves cross, price moves geometrically, not linearly.

    I daresay brighter days lie ahead for silver, especially as investors will have a hard time ignoring gold after the price action of these past two days, and what yet may lie ahead this week.

    I am not a technical chartist. But, gold launched out of a very interesting wedge when it broke through $1580ish earlier this year.

    Many technical guys then became quite concerned when the March sell off took gold not just back down inside that wedge, but blasted way way below it down to $1450.

    Gold hit an overnight low of $1480 on Sunday night before Jerome went LIMITLESS on early Monday morning.

    Gold is now, once again, way above that wedge.

    To me, gold is now in a win win situation regardless of what happens in the stock market.

    If stocks now motor higher on increased optimism, especially if Congress passes some new $2T+ stimulus, then hip hip hooray. The economy will have been saved (in investors’ minds) and no more margin liquidations to come, which seems to have been the source of gold’s problems this month.

    Or, Congress does or does not pass the stimulus bill, and stocks have yet another nosedive to new lows, perhaps as far as S&P 2000, which is a cool 15% down from here.

    Such a move would engender even more action from the Fed. Perhaps they finally get Congressional approval to buy stocks.

    Or Jerome doubles QE to $250 BN day of USTs and MBS.

    Even more will be done to save the system.

    Music to the ears of gold investors.

    Final thought……There are no goldbugs any more. Just a handful of
    such wild-eyed endangered animals. But if gold should soon take aim at its $1900 high, I daresay FOMO will finally hit the gold market.

    I think we could be at $2000 gold by the 4th of July quite easily.
    We may even hit $1700 this week.

    If gold hits $2000, then watch out for FOMO to take gold towards the sun…..$2200/2300/2400/2500 could easily come into play, especially now that we are witnessing $70 Intraday moves in gold.

    As for silver, it should finally have a slingshot move, too. But, I will defer to Yra’s expertise for its price targets. But, if investors begin to view silver once again as a monetary metal, it ought to outperform gold from here.

    • David Richards Says:

      Michael, besides those gold mine closures for COVID, in many nations, there are also mint closures (eg, Royal Cdn Mint, Australian Mint).

      Gold coins IN STOCK are currently US$1960 per ounce, a sliver under $2K:

      The paper price will catch up to the physical price, just like happened in 2013. And consider that was countertrend within a primary degree bear market, whereas now it’s a primary degree bull market.

      Whether gold may reach your 2500 remains to be seen. As capital might prefer other asset classes instead. For example, residential real estate is still hot and rising in this region, and it pays a decent yield, actually a superb yield compared to most financial assets. Or westerners might stampede back into stawks, idk. Even if there’s few stock buybacks again, western CB’s might buy stocks enmasse. And tax, confiscate or ban gold again, as per the EU rumors. And remember the 1970’s when the US previously enacted a windfall profits tax that stole most of your oil profits and could have applied that to gold too but then gold prices collapsed.

      • Michael Temple Says:

        Yes, the investment world is not going to go ALL IN on gold.
        So, yes, capital will continue to seek out returns in stocks, bonds and real estate.

        But, I think you underestimate the change in the tides. I have remarked at least a couple of times about the ratio of gold to S&P, a ratio nobody much follows.

        Since the 2011 peak in gold, the ratio has plummeted from well above 1.0 (I think it topped at 1.30) to below 0.40. The trendline was in full force for 9 years as stock returns dwarfed the returns in gold.

        In January, long before Covid kicked into gear, gold finally turned up relative to S&P and the ratio poked above that LONG LASTING trendline when it printed at 0.50.

        Today, it hovers at nearly 0.67. YTD, gold is now up 10% while S&P is down 30%.

        Yes, stocks are soon to rebound. I thoroughly expect it.
        But, I don’t think gold is going to get abandoned this time, not when what will revivify stocks is 10+ Trillion in stimulus.

        Yes, there are great bargains to be had by buying distressed stocks, debt and real estate. But, generically, “stocks” and “bonds “, the vaunted 60/40 strategy will NOT have the returns in 2020s as they did in the 2010s.

        I don’t think it is a stretch to see gold and S&P approach parity this year. 2500? 2600? 2700? Why not?

        Gold miners are in even better shape. Still trading below their recent highs while premiums for physical gold and silver are running between 5-10% for gold and now, apparently, 50%+ on silver.

        Give me gold over the generic S&P 500. Yes, there will be idiosyncratic stocks and bonds that will also be huge winners.

        But, I also firmly believe that your “average” gold index will soar 100-200% in the coming year as gold clearly hits $2000, imho



      • Judd Hirschberg Says:

        Read front page of FT! Retail Silver selling undid the Hunts. Just the opposite going on now.

  33. Michael Temple Says:


    I clearly spoke way too soon.

    Gold has gone parabolic in the past 15 minutes, trading now at $1680, up $120ish/8%ish

    I am ready to call this a 3-sigma move.


  34. Michael Temple Says:

    And, just like that, back down to $1650

    Feels like some shorts had to cover.

    If your Plaza 2.0 Accord prediction comes true, no telling where
    gold skyrockets to at this time.

    Right now, silver is truly “poor man’s gold”. With gold VOL suddenly EXPLODING (as with similar VOL explosions in every other asset out there—stocks, bonds, OIL), what would a VOL explosion look like for silver?

    If gold is $1650, shouldn’t silver soon make it to $16.50 for a still down-in-the-mouth reading of 100:1?

    Probably not just yet, as Happy Days are Here Again in the S&P pit.

    But if gold is suddenly going to garner some headlines and market chatter from all the “experts”, silver should capture the imagination of some folks, don’t you think?

    Buckle up for another adventure ride on Mr. Toad’s Wild Car Chase

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