How Inflation, Prudence, And Fundamentals Are Setting Up Gold To Soar
Sun, 12/01/2019 - 20:30 Authored by Dave Forest via InternationalMan.com, International Man: Governments around the world, including the United States, are printing trillions of currency units. This will continue to significantly devalue these paper currencies and create inflation. Doug Casey recently said: With all the money that’s been created by governments and central banks, the chances are excellent we’re going to have a gigantic bull market. Maybe the last one, since I expect the world is going back to using gold as money—at which point we’ll have a stable gold price. In the meantime, I think mining stocks could go absolutely insane. The prices will have no relation to fundamentals, because everybody will want to own them. How do you think the situation is going to play out for gold and precious metals? Dave Forest: Inflation is a given. I see it every day in commodities, although many mainstream investors don’t recognize it. Yet. In the 2000s, investors were over the moon when gold broke above $1,000 per ounce and copper passed $1.50 per pound. During the previous commodities bear market, those levels were unthinkable. But now, $1,000 gold is peanuts. Hardcore bullion investors were distraught in 2016 when gold “plunged” close to $1,000. That’s seen as a depressed and unsustainable price. Same with copper. That sector’s been in the doldrums, because the price fell below $2.50 per pound. If you’d told a copper miner in 1999 they’d have $2.50 copper, they would have popped the champagne! Today, it’s seen as scraping the bottom of the barrel. The thing is, back in the “old” days, you could mine and process an ounce of gold for $100. Today, production costs are more like $600 per ounce. Closer to $1,000 per ounce if you add in sustaining and expansion capital. That’s the real reason metals, including gold, have to go higher. The gold price isn’t arbitrary. The price must exceed production costs—or mines will shut down and supply will run out. The massive inflation in production costs is driven by lots of things: rising fuel prices, increasing wages and benefits for workers, and higher steel prices. Barrick Gold, the world’s largest public gold miner, saw costs for one of its new mines, Pascua Lama, rise by billions of dollars within just a few months! Politicians can’t sleight-of-hand those costs away—they’re real. So, the only conclusion is gold—and all metals—need higher prices in order to keep supply coming. International Man: What other factors are affecting gold right now? Dave Forest: We think of gold as a “safe haven”: Break glass and use when things really fall apart. But many players in the financial sector are already using gold day-to-day, as a financial instrument. In China, for example, many exporters don’t have access to currency hedging. They’re exposed to fluctuations in the exchange rate between the dollar and yuan while they’re waiting for dollar-denominated payments to come in. If you can’t hedge currency rates through the banks, what do you do? Chinese firms found an alternative: Buy gold. The idea is, if the US dollar depreciates, the value of gold holdings will go up, because gold is globally sold in US currency. In effect, these firms hold gold as a short-term hedging instrument. They could actually do the same thing with sheets of copper cathode or barrels of oil, but gold is the easiest major commodity to purchase, hold, and eventually sell once currency has been converted. Of course, the root cause here is currency instability: people fearing a breakdown in the US dollar. So, it’s not far off the reasons doom-and-gloomers buy gold. Just that Chinese buyers are doing it in the short term, for purely commercial reasons. International Man: The mining business is extremely volatile and risky. There are thousands of mining companies out there, and most of them are junk. What is your approach to separating the winners from the losers? Dave Forest: First off, recognize that “junk,” in terms of mining stocks, comes in several forms. There are of course, outright scams. That ranges from full-on fraud (not that common) to huckster promoters who legitimately take people’s money but then use it to pay themselves huge salaries while doing little or no technical work (much more common). Looking at salaries is a good way to spot those latter cases. Public companies in Canada disclose their officers’ wages. It’s not uncommon to see CEOs of a company with $1 million in the bank making $400,000 per year. When 40% of your firm’s budget is going to pay one person, there’s not a chance the company is going to perform. Never mind that these people generally would be unemployable, even for $1 yearly, in any other industry. A much more subtle form of junk is the “hobby farm” company. You know how people, often older, will buy a farm for the fun of being outdoors? They’ll putter around doing a little work here and there, but the whole thing is mainly for enjoyment rather than serious commercial endeavor. A significant number of junior mining stocks are like this. Exploration companies, after all, are just a couple of guys with a pickup or maybe a helicopter walking around picking up rocks. Older geologists will often do this for the fun of it. It’s nice to have shareholders pay for your summer fishing trip up north. While there, these “execs” might walk into the bush and grab a few samples, but they’re not pushing to run a real business. Those companies go absolutely nowhere, very slowly. You have to really watch out for those, because the people will seem sincere and often credible. But their heart isn’t in it, so they never accomplish much. Once you weed out those, you’re left with a small group of more-interesting stocks. These are the companies that have good ideas about where new mineral discoveries might be made. They’re motivated and hungry; they usually have their own money invested in the hunt. They run the company like a business. That means they consider whether the cash they’re spending will add value to a project. It also means they know what value looks like in a mineral property! International Man: As a geologist, you’re on the ground in obscure places like Colombia, Russia, Mongolia, etc., searching for new deposits and breakthroughs. What are some of the most interesting places on your radar right now and why? Dave Forest: North America, minus Mexico. As you say, I’ve spent a lot of my career in obscure places. Ten years ago, you would go abroad, because it was tough to break into established spots like Ontario or Nevada. But the recent downturn in exploration’s changed all that. I spend a lot of my time in Nevada now, and it’s astounding how little exploration work is going on, despite the state being ranked number one in the world for mining. Today, you can get acreage and try new ideas. I’ve even seen companies stake out whole districts that were abandoned during the downturn. Building a mine anywhere is tough these days. Environmental activism (or commercial interests masquerading as such) and “not in my backyard” (NIMBY) concerns are rising everywhere. Places like Nevada or northern Saskatchewan have the advantages of having established mining sectors, relatively stable governments, and—most importantly—very few people. No backyards, no NIMBY. That said, I still love travel. And I do keep an eye out for emerging opportunities abroad—they just have to be big opportunities to make up for the increased political risk. One spot I checked out recently was Uzbekistan. The country has the world’s largest gold mine, called Muruntau, which has something like 200 million ounces. Uzbekistan’s dictator died in 2016, and the new prime minister seems very sincere in accelerating free-market reforms. That includes opening the mining sector to foreign exploration and development. I visited last summer and couldn’t believe what’s happening. Government officials couldn’t meet until 10 PM, because they were too busy working at the office to get the prime minister’s orders done. There have been reported cases of government staff dying from overwork! These people are serious. It’s one to watch. International Man: You recently came across a new technology that could change the way mining companies find gold deposits. What exactly is this and what is the potential? Dave Forest: A few years ago, I was introduced to a PhD mathematician. He’d been an executive consultant for 25 years to one of the world’s largest mining companies. He had a corner office and a green light for three-hour, two-bottles-of-wine lunches whenever he wanted. Why? Because he could do something I’ve never seen before (and apparently this mega-mining firm never had either). He could use satellite data to find gold, copper, or zinc. Now, there are lots of geologists who try to use satellite data to pinpoint ore deposits. This “remote sensing” has been in use since the 1980s. I’ve always been a skeptic. Most times, satellite geologists just torture the data until it fits their preconception of the target. I never saw a convincing case where satellite imaging revealed a new discovery. But when I met this PhD, I was intrigued. It wasn’t just his impeccable credentials in the industry—his approach is elegantly simple in a mathematical sense. He didn’t torture the data with interpretations. He just ran his algorithm and let the results speak for themselves. I wanted to find out more. So, I gave him a test. It was a gold project in dense jungle in eastern Myanmar. I knew the gold mines are there, only because I’d been on the ground, under the tree canopy. But from the satellite view, you couldn’t see anything. There was no way to cheat. He used his techniques and sent me a “heat map” that pinpointed the mine locations almost exactly. I was floored. Since then, we’ve used this “digital treasure map” in Mongolia, Colombia, Nevada, and eastern Canada. The results, when field checked, have been excellent. We started thinking about how this could benefit investors. What if you knew about a big mineral find on a company’s property before the company did? That’s what we can do with this satellite system. We can scan anyone’s property, almost anywhere on Earth. Using the system, we recommended three stocks to International Speculator readers. One stock was bought out by a larger gold company within months of our recommendation, for a 219% profit. Another stock has risen more than 200% since our recommendation, on excellent gold drill results. The last stock is still moving toward drilling. I think we knew they had a potentially major discovery before they did! This also shows why now’s the perfect time to invest in mineral exploration. Why was this PhD genius available and not squirreled away in the bowels of a major mining firm? Only because the company he was working for laid off their entire exploration department during the most recent industry downturn. Crisis = opportunity.
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Authored by John Mauldin via RealInvestmentAdvice.com,
You really need to watch this video of a recent conversation between Ray Dalio and Paul Tudor Jones. Their part is about the first 40 minutes. In this video, Ray highlights some problematic similarities between our times and the 1930s. Both feature:
Maybe it was in his rush to finish as their time is drawing to a close, but it certainly sounded a more challenging tone than I have seen in his writings. Currency Wars It brought to mind an essay I read last week from my favorite central banker, former BIS Chief Economist William White. He was warning about potential currency wars, aiming particularly at the US Treasury’s seeming desire for a weaker dollar. Ditto for other governments around the world. He believes this is a prescription for disaster. One possibility is that it might lead to a disorderly end to the current dollar based regime, which is already under strain for a variety of both economic and geopolitical reasons. To destroy an old, admittedly suboptimal, regime without having prepared a replacement could prove very costly to trade and economic growth. Perhaps even worse, conducting a currency war implies directing monetary policy to something other than domestic price stability. There ceases to be a domestic anchor to constrain the expansion of central bank balance sheets. Should this lead to growing suspicion of all fiat currencies, especially those issued by governments with large sovereign debts, a sharp increase in inflationary expectations and interest rates might follow. How this might interact with the record high debt ratios, both public and private, that we see in the world today, is not hard to imagine. I called Bill to ask if he thought this was going to happen. Basically, he said no, but it shouldn’t even be considered. It was his gentlemanly way of issuing a warning. Currency devaluations against gold were part of the root cause of the Great Depression. Coupled with protectionism and tariffs, they devastated global economic growth and trade. The Repeat of the 1930s? Do I think it will happen in any significant way in the next few years? It is not my highest probability scenario. But imagine a recession that brings the US deficit to $2 trillion, possibly followed by a governmental change that raises taxes and spending. This could bring about a second “echo” recession with even higher deficits. This would force the Federal Reserve to monetize debt in order to keep interest rates from skyrocketing, thereby weakening the dollar. Couple this with a concurrent crisis in Europe, potentially even a eurozone breakup, resulting in countries all over the world trying to weaken their currencies with the potential for higher inflation in many places. In such a scenario, is it hard to imagine a desperate president and Congress, toward the latter part of the next decade, regardless of which party is in control, instructing the US Treasury to use its tools to weaken the dollar? Can you say beggar thy neighbor? Can you see other countries following that path? All as debt is increasing with no realistic exit strategy except to monetize it? Wells Fargo plans to close 800 more branches by 2020
by Matt Egan @MattEganCNN money.cnn.com January 12, 2018: 1:48 PM ET Wells Fargo draws bipartisan anger from Congress Wells Fargo, scrambling to cut costs and offset soaring legal expenses, plans to pull the plug on 800 more bank branches by 2020. The planned closings, announced on Friday, will leave Wells Fargo (WFC) with about 5,000 branches. The bank closed more than 200 branches last year, but still finished the year with more than 5,800, the most in the United States. On a conference call with Wall Street analysts, Wells Fargo execs pinned the closings on Americans' increasing preference for online and mobile banking. "We will have as many branches as our customers want for as long as they want them," said John Shrewsberry, the chief financial officer. But analysts also see a link to Wells Fargo's infamous legal troubles. The bank's litigation expenses more than tripled to $3.3 billion last quarter. The legal costs stem from the bank's fake-account debacle, investigations into pre-crisis mortgages and "other consumer-related matters." Those mounting expenses have unnerved Wall Street. The bank plans to cut $2 billion in expenses this year and another $2 billion in 2019. Related: Wells Fargo's legal troubles down out huge tax windfall Another problem: Wells Fargo's branches likely aren't the profit machines they were before the scandal. The bank abandoned its notoriously aggressive sales goals following the revelation of 3.5 million potentially fake bank and credit card accounts. In a statement to CNNMoney, Wells Fargo said it evaluates its branch network "solely on customer trends, market factors and economic changes." Wells Fargo did not release an estimate of how many employees will lose their jobs as a result of the planned branch closings. The bank pledged to help employees "identify opportunities within Wells Fargo, as well as within the community." Last month, Wells Fargo announced plans to share its tax cut windfall with workers and customers by raising its minimum wage to $15 an hour and giving 40% more to charities. Before the scandal, Wells Fargo had been much more reluctant than rivals to close branches. Between 2012 and 2016, Wells Fargo only shut about 2% of its branches, according to brokerage firm CLSA. By comparison, JPMorgan Chase (JPM) closed 9% of its branches over that span, while Bank of America (BAC) shuttered 15%. That trend has shifted. Wells Fargo close almost twice as many branches in 2017 as JPMorgan, according to figures released on Friday. Wells Fargo plans to shut another 250 branches this year. In Bizarre Admission, ECB Warns Its Policies Threaten Financial Stability, Could Lead To A Crash ZeroHedge.com Thu, 11/21/2019 - 04:15 Is the world's largest hedge fund central bank finally starting to appreciate the devastating consequences of its asset reflating ways? In some ways it is almost ludicrous to presume that a central bank which at the beginning of the year laughably "found" that its QE has reduced inequality in the eurozone... The ECB also "found" that QE which has led to record inequality and unprecedented social upheaval has "reduced inequality" may have finally looked in the mirror objectively, and yet on Wednesday, it was the ECB which admitted that historically low eurozone interest rates - which it is solely responsible for - and which are expected to persist into the foreseeable future (and beyond) are causing increased risk-taking that could threaten financial stability. "While the low interest rate environment supports the overall economy, we also note an increase in risk-taking which could… create financial stability challenges," ECB vice-president Luis de Guindos said non-ironically in a statement... which to us sounds an awful close to a mea culpa. Then again, we know that central banks never admit responsibility for "increases in risk-taking" so we wonder if he was just trolling everyone. Or perhaps he isn't: "Signs of excessive risk-taking" were spotted by the Frankfurt central bank among non-bank financial players like "investment funds, insurance companies and pension funds." Indeed, many "have increased their exposure to riskier segments of the corporate and sovereign sectors" the central bank said. Of course, it is the ECB's own policy of negative yields has prompted investors to seek out riskier bets in search of returns. Curiously, while the ECB’s twice-yearly update to its risk assessment shifted focus from May’s trade war concerns, “downside risks to global and euro area economic growth have increased” in the meantime, it warned. Such dangers included “persistent uncertainty, an escalation in trade protectionism, a no-deal Brexit and weak performance of emerging markets,” notably China, the ECB said. In another stark admission of reality, the ECB said that an economic downturn - one which is virtually assured for Europe - could crash prices for riskier and less liquid assets as actors like asset managers or hedge funds sell up in a hurry. "This may have implications for the ease and cost of corporate financing which could exacerbate any real economy downturn," the ECB warned, adding that elsewhere in the economy, lower interest rates also "appear to be encouraging more borrowing by riskier firms" in non-financial sectors, as well as inflating property prices in some parts of the eurozone. If only there was something the ECB could do to prevent this... Alas it won't, because returning to a far more familiar place, the ECB judged that authorities in the 19 eurozone countries were already taking steps to head off financial stability risks from property bubbles. Meanwhile the central bank found that “bank profitability concerns remain prominent” as growth has weakened and eurozone policymakers further lowered a key interest rate in September. As well as outside pressure, banks “have made slow progress in addressing structural challenges." Here, for some odd reason, the ECB valiantly refuses to admit that keeping the yield curve consistently negative is catastrophic for bank profitability, and instead of admitting fault, the central banks points to silly diversions such as banks that do not have Apple apps. The central bank also points to "slow improvements" on multiple fronts to explain lack of bank profits, like disposing of so-called “non-performing” loans, where borrowers have fallen behind on payments. Lenders must also cut costs and reduce overcapacity, and are largely failing to diversify their businesses, the ECB judged, effectively urging banks to keep firing people. Because it's not like the Eurozone has an unemployment problem. The good news according to the ECB: most banks have the liquid assets on hand to withstand any foreseeable financial shocks. We'll find out soon enough. Ron Paul Asks: Is The "Mother Of All Bubbles" About To Pop?
ZeroHedge.com Mon, 11/11/2019 - 17:05 Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity, When the New York Federal Reserve began pumping billions of dollars a day into the repurchasing (repo) markets (the market banks use to make short-term loans to each other) in September, they said this would only be necessary for a few weeks. Yet, last Wednesday, almost two months after the Fed’s initial intervention, the New York Federal Reserve pumped 62.5 billion dollars into the repo market. The New York Fed continues these emergency interventions to ensure “cash shortages” among banks don’t ever again cause interest rates for overnight loans to rise to over 10 percent, well above the Fed’s target rate. The Federal Reserve’s bailout operations have increased its balance sheet by over 200 billion dollars since September. Investment advisor Michael Pento describes the Fed’s recent actions as Quantitative Easing (QE) “on steroids.” One cause of the repo market’s sudden cash shortage was the large amount of debt instruments issued by the Treasury Department in late summer and early fall. Banks used resources they would normally devote to private sector lending and overnight loans to purchase these Treasury securities. This scenario will likely keep recurring as the Treasury Department will have to continue issuing new debt instruments to finance continuing increases in in government spending. Even though the federal deficit is already over one trillion dollars (and growing), President Trump and Congress have no interest in cutting spending, especially in an election year. Should he win reelection, President Trump is unlikely to reverse course and champion fiscal restraint. Instead, he will likely take his victory as a sign that the people support big federal budgets and huge deficits. None of the leading Democratic candidates are even pretending to care about the deficit. Instead they are proposing increasing spending by trillions on new government programs. Joseph Zidle, a strategist with the Blackstone investment firm, has called the government — or “sovereign” — debt bubble the “mother of all bubbles.” When the sovereign debt bubble inevitably busts, it will cause a meltdown bigger than the 2008 crash. US consumer debt — which includes credit cards, student loans, auto loans, and mortgages — now totals over 14 trillion dollars. This massive government and private debts put tremendous pressure on the Federal Reserve to keep interest rates low or even to “experiment” with negative rates. But, the Fed can only keep interest rates, which are the price of money, artificially low for so long without serious economic consequences. According to Michael Pento, the Fed is panicking in an effort to prevent economic trouble much worse than occurred in 2008. “It’s not just QE,” says Pento, “it’s QE on steroids because everybody knows that this QE is permanent just like any banana republic would do, or has done in the past.” Congress will not cut spending until either a critical mass of Americans demand they do so, or there is a major economic crisis. In the event of a crisis, Congress will try to avoid directly cutting spending, instead letting the Federal Reserve do its dirty work via currency depreciation. This will deepen the crisis and increase support for authoritarian demagogues. The only way to avoid this is for those of us who know the truth to spread the message of, and grow the movement for, peace, free markets, limited government, and sound money. 'Solutions Are Obvious' - The US Higher Education System Is Broken
ZeroHedge.com Mon, 11/11/2019 - 21:45 Authored by 'Solutions Are Obvious' via The Burning Platform blog, The US higher education system is broken. In many cases, it produces individuals with useless degrees purchased at outrageous cost. The system itself is an infestation of ultra liberal professors, spineless administrators and a student body that becomes more and more radicalized and detached from reality the more courses they take. The higher education system is the incubator for the anti white, anti male, anti Trump, pro freak, pro censorship, anti gun, pro socialist, anti conservative, pro unlimited immigration, pro free everything mentality that pervades what purports to be the evening news. It infantilizes young adults to produce a steady stream of victims and mental midgets completely unprepared to meet the real adult world. All is not lost, however. By and large, STEM graduates are less affected by the SJW mental aberration as their critical thinking abilities are necessarily on a higher plane to be able to cope with a curriculum that is more than just opinion. STEM fields have empirically based phenomena to comprehend and must use known tested methods of reasoning and logic to handle the problems and situations a particular field is called upon to investigate. Although STEM students are typically forced to sit through nonsense classes and regurgitate what the instructors deem critical information, they instinctively know its BS and promptly forget it once the class is over. They’re typically not permanently scared. The problem lies with the ‘Basket Weaving’ majors where no proof of anything is required or even possible as it’s all just opinion and supposition. The Humanities / Social Sciences / Liberal Arts courses offer an easy path towards a degree, many of which are absolutely worthless. It’s actually a shame that some of them do lead to living wage and beyond employment options that end up producing many of the fraudulent professions society is encumbered by like Economics, Psychiatry and other specializations that can’t prove anything past common sense. I’ll concentrate primarily on what to do to eliminate only the most egregious fraudulent degrees that are currently plaguing society. The concept of tenure needs to be eliminated. No one should be guaranteed a livelihood by managing to hit some arbitrary mark and thereafter have no responsibility for doing a good job as reviewed by their employer. The education profession needs to get rid of the dead wood clogging the system and consuming resources. All higher education facilities should be mandated to provide their graduates with job opportunities via an employment agency owned and operated by the institution, not a contracted for service. The schools should be totally responsible for finding each graduate a position in the degree field of study for 5 years post graduation. If the institution is unable to place a graduate, then the former student is entitled to a full refund of all tuition paid for a proven obviously useless degree plus 5 times tuition paid for the waste of time involved and to provide the former student with a funds cushion to get retrained in something with a future. In the case where a graduate is unemployable for no reason the school is responsible for or where there is a dispute over responsibility, a 3rd party would be called upon to make a judgment. If this were implemented, Gender Studies, Recreational Science, Hospitality Science, Museum Curator, Drama Studies and similar courses would disappear overnight from most campuses along with the faculty that teach the classes. The schools know these are for the most part BS courses and know that the chances of someone getting employed with one of the basket weaving degrees is so low that it would be financially too risky to offer the course. Gone would be the professors teaching these nonsense courses. Gone would be the lenders to provide the student loans, guaranteed by the Fed Gov which steals the funds from the general public. Gone would be the students mentally or some other way incapable of STEM degrees with no option but to consider vocational training or learn how to say – ‘Do you want fries with that’. Gone would be the windfall profits higher ed facilities have enjoyed in recent decades. Gone would be the unsustainable building boom for facilities completely unrelated to teaching but used as enticements to attract low IQ students easily dazzled by shiny objects. Gone would be the nonsense classes STEM students are now forced to take. Gone would be the environment were the purveyors of bullshit get to indoctrinate the latest crop of weak susceptible minds. Some may claim this violated free market principles. I would counter that the advancement of institutionalized fraud is not in the society’s best interests. If a student were to sign away his/her rights to compensation and effectively opt for today’s environment, then that would absolve the institution of responsibility. The free market would be restored as long as informed consent is involved. In addition, it should be obvious that no one should be able to get an advanced degree in a field that can’t prove its basic precepts. As mentioned previously, something like Economics is almost entirely BS. Economists can’t prove anything past common sense and can’t even provide a proper postmortem after an economic catastrophe. Likewise, Psychiatry has not a single empirical test for the hundreds of conditions listed in their DSM. Psychiatry is opinion masquerading as science and is simply an outlet for Big Pharma to push their mind altering poisons. The large majority of mass shooters have been on prescription only psychoactive drugs. Other fields that I generally refer to as the ‘story telling’ professions should likewise be reigned in. Paleontology, Anthropology, Cosmology, large portions of Geology and many more fields are largely based on a plausible story as their foundation, sans evidence. Absolute proof for their assertions is impossible and consequently it should be impossible to get a degree above Bachelors in these disciplines. No one should claim to be an expert (PhD) in a field that is based on opinion. In the off chance that something like Climate Science might someday actually be able to provide proof of their assertions, it, as an example, should be able to produce Bachelors graduates that can attempt to further the field but would no longer be able to fool the public into thinking they know what’s going on due to their bogus PhD pedigree. |
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