PM Daily Market Commentary - 4/27/2015

davefairtex
By davefairtex on Tue, Apr 28, 2015 - 12:25am

Gold vaulted higher today, rising +21.30 on very heavy volume, while silver shot up +0.65 to 16.36 on very heavy volume too.  The action started in silver at 09:10 EDT, and then both metals shot higher together at around 10:00 and just never looked back.  Both gold and silver closed near their day highs.

Why did the buyers appear today?  I don't know.  Nothing else moved in sympathy with gold and silver, but when silver marked a swing low at 09:10 that definitely got my attention.

Honestly, I don't like seeing these massive moves higher - if I were ordering "a bullish move in PM", I'd ask for something more sedate, such as steady buying over an entire week, rather than a move like this.  That's because moves like this look like a short-covering rally, which tend to last for just one day.  Still, up is better than down.  If gold can close above 1210, the move higher may be more sustainable.  There is nothing like buyers pushing prices higher after a big rally to send that signal.

After weeks of outperforming gold, the miners did relatively poorly today.  Miner ETF GDX rose +2.07% on heavy volume, while GDXJ climbed +2.97% on moderately heavy volume.  Miners looked strong for most of the day up until the last 15 minutes when they sold off hard right at the close.  I never like to see that.  When gold rallies this hard, I want to see those miners doing the same thing.  When they don't, it suggests that traders don't really believe in the gold rally.  For me, its a warning sign.

The dollar continued falling today, down -0.16 to 96.94, closing below its 50 MA for the second day in a row.  As I've mentioned before, the buck hasn't been below its 50 MA since July 2014, so this represents a potentially important change in trend.  At the very least, dollar momentum is waning.  While the buck wasn't the reason gold rallied today, a falling dollar usually helps gold and the miners, all else being equal.

The Euro, for its part, is now threatening to close above its own 50 MA for the first time in months too.  To me this doesn't mean "all is well in Europe", but the Euro has had a very large drop, and some sort of bounce is to be expected.

SPX (US equities) set a new all time intraday high today of 2125.92, but the rally failed and SPX closed down -8.77, printing a "bearish engulfing" candle which may mark a top.  Certainly, failed rallies tend to be bearish.  VIX supported this thesis by climbing +0.83 to 13.12.  Equities have been less convincingly bullish over the past two months.

Bond ETF TLT was flat today.  I'd have expected bonds to climb at least a little given the drop in SPX - since they didn't, bonds appear somewhat weak to me.  The chart bears this out.

The CRB (commodity index) fell slightly, off -0.04% - the six-week-old commodity rally may be stalling here.  Likely this depends on what happens with oil.

WTIC (west texas crude) fell, losing -0.77 to 56.65.  Oil has been chopping sideways for the past 7 trading days.  Its possible we have renewed hedging by desperate shale drillers.  Right now, oil seems capped by resistance at 58.  A close below the 9 EMA will suggest a correction may be in store for oil.

While its awfully nice to see gold and silver rally, the lack of confirmation from the mining shares has me half-expecting this to be a one-day short covering spike.  If gold closes above 1210, however, the picture starts to look substantially better.  Likewise if the miners start to lead gold & silver higher.

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17 Comments

davefairtex's picture
davefairtex
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cash: de-facto illegal; where will you hide?

I've read a large number of articles about cash over the past few years.  The trend towards making cash illegal, on a de facto basis, is steady and accelerating.

First it was Larry Summers, suggesting if we only we didn't have cash, our friendly central banks could impose negative interest rates at will on hapless savers.  Such a clever plan.  Savers haven't been hosed badly enough by ZIRP, I guess.

We also read about how police in some areas feel free to seize your cash (pretty much in any quantity) and force you to prove that its yours, to support their salaries and bonuses.  Makes me reluctant to travel with cash, at least.  Or for police to search my home.  If they find cash - presto.  Cash goes away until I prove I'm the owner.

We hear in France and Italy how cash is illegal for purchases of under 1000 euros.  How French police on the trains interrogate travelers.  "Do you have cash?"

In the US it is very difficult to withdraw cash in large amounts without going through a lot of hassle; questions, appointments, and then you get only $5000 at a shot.  And there are mutterings.  "Don't you think its dangerous to have all that much cash?"  (What, are you going to tell the criminals I have it?)

It's also tough to wire money - even to yourself - to accounts outside the US.  If you try, you will be interrogated, and if you give them the wrong reason, they tell you "no, that's not a valid reason."  This happened to me.  So I kept giving them reasons until they said "ok".

JP Morgan now makes it a violation of your agreement to store cash in a safety deposit box.

Now that the SNB has imposed negative bank deposit rates, at least one pension fund looked into withdrawing some large amount of cash and depositing it into a vault (apparently, vault storage for cash, including guards and insurance, was actually less than the negative interest rate).  Outcome?  Bank where the pension fund had their deposits refused to give them the cash - something about "interfering with the policy of the Central Bank of Switzerland."

To me, the trend is pretty clear.  The trend is to eliminate cash, at least in large quantities, as a possible refuge from bail-ins, bank runs, or negative interest rates.

Martin Armstrong had an article today where he laid this out:

http://armstrongeconomics.com/2015/04/28/gold-a-future-bull-market/

The paper dollar and gold are ending up on the same side of the fence with this war on cash that is brewing. J.P. Morgan is looking to charge money to people who have cash on deposit beyond what they deem to be necessary as of May 1st.

Oddly enough, hoarding paper money is a hedge against the banks. This is why many are now advocating abolishing paper currency and moving towards electronic. The key to a future bull market in gold is not “fiat” nor is it “inflation”. Those theories are really meaningless.

I've always thought that the FRN and gold were really both on the same side.  An FRN is not subject to bail-ins, negative interest rates, and can be used to extinguish dollar debt - at least for now anyways.

Armstrong has another article where he details just how large the bond market is vs equities - perhaps a factor of 3?  He suggests that when people start to flee bonds, given that cash isn't an option, and that bank deposit rates will be punatively negative, the equity market - and gold - will likely both scream higher in anticipation of both sovereign default and/or bail-ins.

We appear to be entering into territory that has not been seen for hundreds of years.... The future will be the decoupling of stock prices from earnings because we are dealing with capital preservation. Those who constant[ly] harp that the stock market is over priced would imply buy bonds. That is the opposite side. But rates are nothing to negative. Of course you will have those who will yell buy gold. But that is still a tiny fraction of the world economy. Even equities are grossly under weighted within the world economy compared to debt. That is where the BUBBLE really lies and that is what we must pay attention to. The traditional sell stock calls are the same old reasoning that has existed in a Public Wave. What happens when confidence collapses in government. It is a complete new game.

Equities will become (even more) decoupled from earnings, and everyone from mom & pop to the central bankers managing reserve assets will be fleeing government debt and buying private assets - once confidence in government debt starts to collapse.

So far, we're nowhere close to that.  According to Armstrong, the bubble is in sovereign debt.  Once that pops, money flees everywhere like a bunch of roaches on the floor when the lights go on.

And they are slowly but surely slamming the door on cash.  It won't be illegal - at least not yet - just impossible to move into as a refuge in any real size.

And even if you do - they may well cancel the currency, forcing you to turn in your old bills, proving where you got them (a la asset seizures) in order to be able to get the new bills.  It all depends on where the money is that they are desperate to seize...

thc0655's picture
thc0655
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OK now I'm REALLY worried

I try to keep my paranoid fears in check, but when calm, level-headed Davefairtex starts expressing his concerns about the creeping war on cash, I go ballistic!  Dave: you escalated my level of concern (already high enough) without offering me any solutions.  Of course, you're too smart to offer any  solutions on the internet.  The only comfort I drew from your musings is:

So far, we're nowhere close to that.

Yes, but when/if it happens it will be a shock and a surprise to nearly everybody.  By definition, such a move of financial repression of banning cash (however it would be implemented) has to be sprung on people in a surprise, instantaneous move that doesn't give the victims time to react.  I get the willies anytime the President or Secretary of the Treasury has a press conference on a Sunday.

I'm sure the elite will alert each other to any coming ban on cash (a la Cyprus), and may even leave a legal loophole to squeeze through.  I'm just hoping it may be possible to pick up on their moves early enough to respond in kind.  I'd also like to figure out any legal loopholes they leave for themselves, and get into whatever that is myself.  I'm suggesting they "allow" US citizens to keep whatever silver and gold American Eagles they have.  (Do you think they're watching us right now?)

The public might not realize right away what a profound move this would be.  But once the herd catches on, I don't see how anyone could expect anything but revolution.

"Welcome to the Hunger Games. And may the odds be ever in your favor."

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Time2help
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On banning cash...

HughK's picture
HughK
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Permaculture or gasoline, but not cash

Let's forget about cash in the bank.

and invest in this:

Or this:

Time2help's picture
Time2help
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Let's not forget
HughK wrote:

Let's forget about cash in the bank.

Or, how about, let's not forget. 

Ban it. Call a press conference and say "to fight criminals and terrists", we are going to ban cash moving forward. Now go "turn in your cash".

Think of all the beautiful, wonderful cognitive dissonance that will generate.  Just imagine the possible plethora of unintended consequences.

Ain't no way out of this mess but through the muck Ladies and Gents.

(HughK - I did upvote your post, its a much better use and focus of energy. My belief is that more need to wake up before that becomes a shared, collective (ugh, not a fan of that word) vision.  So whatever it takes to wake people up...banning cash might help in that).

davefairtex's picture
davefairtex
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cash vs bank deposits

As Armstrong said, cash is a hedge against banking problems.  If you look on the various balance sheets, cash is a liability of the Fed itself, while a bank deposit is the liability only of that one bank.  Although they appear to be equivalent, they are not.  Your counterparty in each case is quite different.

Cash is like gold in your hand, while a bank deposit is like unallocated gold at the LBMA.  Of course gold and cash are not the same - but physical gold/physical cash are both things you own while unallocated gold/bank deposits are just promises that can be defaulted upon.  (We assume for the moment that the Fed will not actually default upon the FRN in the same way as a bank could default upon a deposit - there aren't enough FRNs to make that a worthwhile thing).  Both physical items are hedges against counterparty failures, and as long as cash can still be used freely, cash represents a good place to hide from bail-ins and negative interest rates.

I'm not sure cash will ever be banned.  But the trend is, the more likely bail-ins and the more negative rates go, the more incentive they will have to limit cash use.  That might not be the reason they'll use, but I think that, plus the desire to tax the underground economy in order to fund government salaries will be the primary motivation.

Right now, reporting limits on cash are $3000 at selected places.  After the next terrorist attack funded by "cash" (aren't they all?) they'll drop it to $1000, and then $500, and then it will be "use cash to buy something more than $20 at the store, and you must show/swipe your ID - which then must be transmitted along with the purchase amount to the Treasury Department."  Ratchet effect based on inconvenience and reporting.

Mentally, I'm just drawing a trendline and I see: "report all cash transactions over X", where X gets smaller every year.  Too many organizations benefit from the removal of cash for the trend to be any other way.  And the need to repress us increases too.

Frog in the water situation.  When the limit goes from $500 down to $250, will that cause revolution?  How about from $250 to $150?  And if its just about "reporting", who revolts over reporting?

(A few well-publicized prosecutions of "drug money mules" - 10 years in prison - using evidence obtained through this reporting should help slow cash usage too.  "They were laundering money for drug dealers.  You wouldn't want that to be you, now would you?"  Or an IRS audit - "we noticed you spent $50k in cash in 2016, but only withdrew $10k from your ATM.  We're going to add that other $40k you spent as unreported ordinary income to your 1040.  Unless you'd care to tell us where you got it...oh you withdrew it in 2012?  Did you keep records?  No?  Hmm that's too bad...for you...")

I'm not saying panic - but Armstrong's articles suggest we be mentally/emotionally prepared for some surprising actions, especially surrounding cash, which in the past I (more or less) thought would end up being a decent hedge.  Now - I'm just not sure anymore.

 

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Need more Thumbs up for this post!
davefairtex wrote:

I've read a large number of articles about cash over the past few years.  The trend towards making cash illegal, on a de facto basis, is steady and accelerating.

First it was Larry Summers, suggesting if we only we didn't have cash, our friendly central banks could impose negative interest rates at will on hapless savers.  Such a clever plan.  Savers haven't been hosed badly enough by ZIRP, I guess.

(...)

I need to look into extending and then abusing my admin privileges to allow me to add 50 extra thumbs up if I want to, which is what I'd give this post/comment.

I only get one vote too, however.

It is clear that the PTB are intent on assuring that they get their way.  My ire gets built up when I realize that they are busy nailing all of the escape hatches on this sinking boat closed ... from the outside.

We're in here with shrinking options to save ourselves, they are busy getting stinking rich (for the moment) off of their same self-serving acts of  "public service."

They wish us to think it's some form of accident that the 0.1% and the big banks are all making out like bandits over the very same policies that are thieving pennies from billions of captives, and that it's such a shame that their super-duper policies are not inspiring all of us to spend more and then borrow even more than that.

Grrrrrr....

As cynical as I am, I find I can't keep up

     ~ Lily Tomlin

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Petey1
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No where left to hide!

Scary stuff! Really running out of options. Where I work no one can get a raise but you would not believe the government grant money being spent on cameras, alarms, and doors with card swipe tracking systems. You can't use the bathroom without someone knowing when and how long you are in there!

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Mark Cochrane
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Time for an alternate currency (or several)

I am not sure if they can manage to prevent all cash transactions but they can make them more and more painful as Dave explains. I can also attest to the fact that wiring money internationally is a royal pain in the ass. It should be instantaneous but they hold it for days, if it gets where it was headed. If it doesn't it sits in the system for an indeterminate amount of time while they skim, bet, hedge or whatever. I had money stuck this way for 5 months!!!!

Should they try to keep ratcheting up the pain on cash then I suspect that the results will be sort of like when they had the bright idea of locking Iran out of the financial system using SWIFT codes. As soon as that happened the entire world started looking for alternatives to SWIFT. This has reduced the US ability to control money flow internationally and birthed the Asian Infrastructure Investment Bank (AIIB) to  circumvent the IMF/World Bank/ADB.

How long until bit coin, aurum or any of the other alternative currencies catch fire for the 'underground' economy? The rest of the world uses US dollars as a hedge against their own governments. Will we be doing this with renimbi? The more the US tries to impose currency controls the more alternatives will be used to avoid such practices. What good is a reserve currency that cannot circulate freely?

Mark

 

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Jbarney
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We Live In Interesting Times

Was on Zero Hedge and saw the story about the spike in Gold and Silver and thought I'd come over here to see if anyone had picked up on it yet.  The news certainly isn't uplifting, is it?  The collapse may very well spiral slowly, but today in a nut shell...

1.  Banks start to limit cash

2.  Price of Gold and Silver Rise

3.  Riots in Baltimore

Worked on the orchard a bit more today.  Added mulch, cut down some of the border trees to make the orchard bigger in the future.  Checked on my honey berry plants and my black berries.

Be well everyone,

Jason

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Time2help
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Horror vacui
Mark Cochrane wrote:

The more the US tries to impose currency controls the more alternatives will be used to avoid such practices. What good is a reserve currency that cannot circulate freely?

Aristotle wrote:

"Nature abhors a vacuum"

Arthur Robey's picture
Arthur Robey
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Circumvention Not Hard.

Tally sticks are an option. It is hard to counterfeit the wood grain.

Question: Which is the authentic stick if they are different?

 

Edwardelinski's picture
Edwardelinski
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No contingency plan

When cash is eliminated and the electronic currency is the sole method of commerce, we are set up for the nastiest of global crises when either a solar electromagnetic storm or devious terrorists take out the electronic banking industry.  Keep hoarding the gold and silver.    

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Nate
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Armstrong
davefairtex wrote:

Armstrong has another article where he details just how large the bond market is vs equities - perhaps a factor of 3?  He suggests that when people start to flee bonds, given that cash isn't an option, and that bank deposit rates will be punatively negative, the equity market - and gold - will likely both scream higher in anticipation of both sovereign default and/or bail-ins.

Equities will become (even more) decoupled from earnings, and everyone from mom & pop to the central bankers managing reserve assets will be fleeing government debt and buying private assets - once confidence in government debt starts to collapse.

Dave,

First things first.  This is probably your finest post.  And that is saying a lot - you have had some excellent posts over the years.

Let's see - cash and bonds are converted into stuff (equities, gold, real estate) because the masses lose confidence in the currency.   Doesn't this sound like the start of a very inflationary environment? 

Maybe Nicole Foss over at TAE was more or less right up to now, but there's a huge penalty to pay betting the farm on it. 

Time to place more chips on the Armstrong model.

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redcloud
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Cash outside the US

A majority of US banknotes - primarily $100 bills - are held outside of the US.  What would the people holding those do if US cash were made illegal?  Seems to me such a move would instantly destroy the US$ as the world's reserve currency and create a vacuum that someone else (China?) would attempt to fill.  The US economy would go into a worse tailspin than it's in now, and very quickly IMHO.

davefairtex's picture
davefairtex
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Posts: 5455
outside the US

redcloud-

I totally agree about the USD outside the US.  Cambodia comes instantly to mind - when I landed there, I withdrew money expecting to see some local currency but instead out popped a couple of $100 bills.  Kinda hard to miss.

 I believe the USD can still function as currency for another country at the same time that the US government makes it functionally very difficult (or requires it to be vastly more traceable) to use cash within the borders of the US itself.

Likewise, when writing, I imagined getting my US cash to Cambodia to use.  Unfortunately, there are all these x-ray machines we get to pass through along the way.  Traveling with cash = exposure to seizure.

Regarding "reserve currency" feature: Cambodia using USD as its primary currency is not the same as the USD being "the reserve currency" to the rest of the world.  A reserve currency requires that a large number of central banks owns an amount of that currency, usually in the form of a US treasury bond.  Buying and selling of US treasury bonds is much more traceable than the spending of physical FRNs - sellers of Treasury bonds receive digital dollars, which then have to pass through the banking system.

What makes a reserve currency is a big military, a large economy, a deep market in its debt, and the ability to turn that country's currency into stuff that you want to have.  Again, if its all digital, the US is quite happy, and all the reserve currency stuff happens digitally.  FRNs play no part in that particular game.

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redcloud
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Outside the US

Dave,

Thanks for the clarification about the difference between digital money and FRNs.

BTW, I just read an article on David Stockman's site by Michael Pento about governments' reasons for making cash illegal.  Here's a quote:

So how can central banks and governments ensure rapid money supply growth and velocity if consumers have the option to hoard cash? Some of the “best minds” in Keynesian thought, like Kenneth Rogoff, have a solution to this. They are floating the idea that paper money should be made illegal and the evidence shows governments are listening. If you outlaw hard cash, and make all money digital, there is no limit to how much borrowers can get paid to borrow and how much savers get charged to save. This would make it unprofitable to hoard cash, and compel people to consume and borrow electronic currency as fast as possible. Money in the bank would become the “hot potato”: as soon as it hits your bank account the race would be on to move it to the next person’s account. Whoever gets stuck with the money when the music ends pays a fee; that would be some increase in velocity! And vastly negative real interest rates would force the amount of leverage in the economy to explode.

Pretty scary.  Time to abandon ship.

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