PM Weekly Market Commentary – 03/26/2021

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  • Mon, Mar 29, 2021 - 11:49am

    #31

    sand_puppy

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    I need DaveF

I would like to understand what is happening with the US 10Y Treasury Yield climbing to 1.7+ percent.

Yield is Up meaning Price is down.  Does this mean people are not willing to buy 10Y Treasuries unless the price is very very low?  In otherwords, the 10 year treasury is not too attractive given the 1) huge amount of money printing and the 2) coordinated devaluations of (global) fiat currencies.

  • Mon, Mar 29, 2021 - 11:56am

    #32
    brushhog

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    PM Weekly Market Commentary – 03/26/2021

Basically the investment world is expecting inflation, so they are demanding higher interest. Its a combination of big money printing, QE, massive spending packages, and the expectation of “pent up demand”.

The Fed has stated that they will not raise rates and they are trying to get inflation OVER the traditional 2% mark and stay there for an indefinite period.

This, combined with the lack of Chinese bond buying, is causing the the bond auctions to be lack-luster.

In the March Fed meeting Powel didnt go as far as expected in his guidance to address rising rates. The market expected “yield curve control”, but was disappointed.

  • Mon, Mar 29, 2021 - 12:24pm

    #33

    JAG

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    Sand Puppy’s Saga

Will bitcoin still be around in 50 years?

Maybe the grandpa should just buy land. It is a real asset, it is scarce, and if it is high enough in elevation maybe it won’t be covered by the ocean in 50 years.

Grandpa could plant a food forest on the land, dig a pond, and let wildlife use it as a refuge for the next 50 years.

What could be more valuable than that in 50 years? The granddaughter would be truly wealthy.

 

  • Mon, Mar 29, 2021 - 12:29pm

    #34

    JAG

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    Treasuries

Sp: Does this mean people are not willing to buy 10Y Treasuries unless the price is very very low?

Because the dollar is stable (and even rising), I think it means that the big boys are shorting it. It’s just a trade and it really means nothing in the macro context.

I miss DF too.

  • Mon, Mar 29, 2021 - 02:32pm

    #35

    sand_puppy

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    Land as a form of money for passing through time

Hi JAG,

Really good point about land being a stable form of value that can pass through time with a high probability of success.  (Some risks, but not many).  I could have used that for chapter 1.

However, the rest of our brave young heroine’s story makes her need a form of value that passes through space (long distances) easily, is scalable (good for small purchases –like a magic hair brush) medium purchases (like her mighty steed–which she needs in the next chapter) and large purchases (a castle and a hundred bowmen–but I get ahead of myself…..).

And last but not least, she will come to find out that whenever a centralized controlling intermediary for the form of money is used, her power can be usurped by that intermediary.  Gold money must go through the intermediary of an international banking settlement system.  (Only the paper representations of gold  can move long distances, instantly, outside a global network of central banks.)

The need for a centralized banking authority gives away her power and gives the system owners opportunities to skim.

She will need a form of value that is transmissible over TIME especially, DISTANCE, is scalable (for big and small purchases alike) and is decentralized, person to person system not requiring permission or approval from any authorities.

 

  • Mon, Mar 29, 2021 - 02:46pm

    #36
    brushhog

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    PM Weekly Market Commentary – 03/26/2021

Is an internet connection assumed in this scenario? That seems a rather fragile assumption. Also, would this form of wealth have to be proven and useable over a good length of time [ say 100 years AT LEAST ]?

Seems gold and silver is the best bet. It absolutely does not have to go through an international banking settlement system as has been proven by the fact that gold existed as wealth long before there ever was such a thing as an international banking system. It can be traded directly.

Last question…shouldnt this form of wealth need to actually exist in physical reality?  If you were going to invest your wealth into something in the hopes of having your granddaughter be able to actually receive it, many years in the future…and have it actually maintain its value, your going to want something real and proven over time. You wouldnt want to roll all your hopes on an intangible concept.

  • Mon, Mar 29, 2021 - 02:52pm

    #37
    Nate

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    SP – Simon Black / Dalio on bonds

March 29, 2021
Sovereign Valley Farm, Chile

Ray Dalio is the founder of one of the largest investment firms in the world and has amassed a personal fortune nearing $20 billion from his business and investment acumen.

In short, he understands money and finance in a way that most people never will. And it’s for this reason that his latest insights are so noteworthy.

In a recent, self-published article entitled “Why in the World Would You Own Bonds When. . .”, Dalio makes some blunt assertions about the alarming US national debt, the decline of the dollar, and other negative trends in the Land of the Free.

Here’s a summary of the major points:

1) Interest rates are now so low that “investing in bonds (and most financial assets) has become stupid.”

Dalio points out that bond yields are so low today that investors would essentially have to wait more than 500 years to break even on their bond investments after adjusting for inflation.

That’s why sensible people are already ditching the bond market.

JP Morgan’s CEO Jamie Dimon recently said he wouldn’t touch a US government 10-year Treasury Note “with a ten foot pole.” Neither would Dalio, as he told Bloomberg this month.

2) This is a big problem for Uncle Sam. Investors are ditching US government bonds at a time when the US is “overspending and overborrowing”.

They just passed a $1.9 trillion stimulus, and they have another $3 trillion spending package ready to go, plus plenty of momentum for Universal Basic Income, health care, Green New Deal, and just about everything else.

In short, the government is going to have to sell a LOT of bonds (i.e. increase the debt) at a time when investing in bonds has become stupid.

3) This creates a huge problem for the US dollar.

“The frightening thing about this,” Dalio says, is that many investors have already come to the conclusion that bonds are terrible investments.

So these investors could decide to dump the bonds they already own “at the same time as the [US] government has to sell a lot bonds.”

Just imagine– the US government could easily have to sell another $4 trillion worth of bonds over the next 12-months to cover its massive budget deficit, plus all these wild spending programs.

But then on top of that, investors who currently own US government bonds may decide to dump another $3 trillion worth of the bonds in their portfolios.

This would mean that $7 trillion worth of bonds flood the market at a time when few people want to buy them.

4) As Dalio explains, this would cause one of two things to happen:

“Either interest rates will rise,” in order to entice investors to buy bonds, or the Federal Reserve “will have to print substantial amounts of money to buy [the bonds] that the free-market buyer won’t buy.”

And it’s pretty clear they’re going with option B.

Last year, the Fed was by far the single largest buyer of all the newly issued US government bonds. Yet as Dalio writes, “when they print money and buy those bonds. . . that lowers real rates and it accelerates a depreciation in the value of the dollar, and it also raises inflation pressures.”

5) So what are the potential consequences?

“The real risk, the big risk,” Dalio told Bloomberg, “is of a monetary inflation . . . and that monetary inflation means that even when the economy weakens, inflation rates rise.”

This is essentially stagflation, i.e. rising inflation coupled with a sluggish economy.

6) When does Dalio see these consequences starting to arise? “Late this year.”

7) There are plenty of bigger picture issues too. Dalio acknowledges that the US government is going to need a LOT of money to finance all this spending, so taxes will likely rise. A lot.

As Dalio writes, tax increases “could be more shocking than expected.”

He also believes that “the chances of a sizable wealth tax bill passing over the next few years are significant.”

8) Dalio writes that, as a result of such tax policy and other destructive rules, “the United States could be perceived as a place that is inhospitable to capitalism and capitalists.”

And the combination of high taxes, high inflation, and hostility towards capitalism may compel many investors and businesses to shift their capital and operations overseas and “run from less hospitable places to more hospitable places.”

9) But don’t expect the US government to sit idly by while capital leaves the country. Dalio believes there is “the possibility of capital controls” to prevent money from exiting the United States, as well as “prohibitions against capital movements to other assets” outside of the US dollar like “gold, Bitcoin, etc.”

So, in short: too much debt and money printing leads to a declining value of the US dollar, and potentially stagflation.

As a result, the government is likely to drastically raise taxes and chase business and capital away from the United States, leading to capital controls and prohibitions on alternative investments.

This is not some wild conspiracy theory or crazy conjecture. This is one of the wealthiest, most successful fund managers in human history bluntly calling the end of the US-dollar debt supercycle.

We’ve been writing about this theme for more than a decade, so our readers will not be surprised by either Dalio’s comments, or the solutions he proposes.

His top recommendation, for example, is “a well-diversified portfolio of non-debt and non-dollar assets.”

And in Dalio’s view, diversification means “currency diversification, country diversification, as well as asset class diversification.”

In other words, don’t keep all of your eggs in one basket, one country, or one currency.

 

 

  • Mon, Mar 29, 2021 - 02:58pm

    #38
    Nate

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    JAG – metal hydrite

Any idea what the “secret” metal hydride is that they are using to store the hydrogen?

Just a guess:

FCTO’s metal hydride materials research has more recently focused on so-called complex hydrides that consist typically of alkali or alkaline earth elements that are ionically bonded to a complex anion. The anions themselves can consist of central atoms that are typically transition or main group metals or metalloids (e.g., Fe, Ni, B, Al) or N, to which hydrogen is covalently bonded.

https://www.energy.gov/eere/fuelcells/metal-hydride-storage-materials

I’m following along Sand Puppy, fun and all, but wouldn’t grandpa be doing his granddaughter a bigger favor if he left her a letter instead?  In it he might explain that

purchases –like a magic hair brush

are the things of fairy tales.  Then he could share the secret to all of life with her, that she has always been able to create her own magic hair brush, all by herself.  Grandpa would say that she cannot purchase the brush, no matter how much wealth she inherits.

Letting the mighty steed pass for now, surely the granddaughter deserves her mighty steed. The castle, though, that’s a problem.

Everyone will know she has great wealth, and they will know where she keeps her most prized of all possessions too.  Ah, not sure if it is the brush or the horse.  No matter.

I think we can pretty much agree that if she needs a hundred bowman to protect her horse and brush grandpa hasn’t really done her any favors.

  • Mon, Mar 29, 2021 - 03:37pm

    #40
    timot78

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    PM Weekly Market Commentary – 03/26/2021

Thanks Dave!

Your column has been, outside of  Chris’ CV-19 coverage, the best one on the  Peak Prosperity site.   I used to read it daily until 2020 Silver run – when I switched to more focused group elsewhere to follow closely Junior Silver Miners.   Silver intrigues me a lot, especially that it is the heaviest shorted commodity in the world.  And, Silver might be the most undervalued PM out there.

Palladium Swap Dealer Position PJW

So I say goodbye, but want to leave two charts for your review.  This is Swap Dealers (top 8 LBMA banks that “control” the PM Futures market) historical positioning in Silver and Palladium markets.  Why Palladium?  Because this is the only PM (on top of Rhodium) that successfully reached natural supply-demand equilibrium since 2018 – without being heavily manipulated by the LBMA banks (primarily due to high physical demand by automotive industry in China and Diesel-gate that used Platinum in catalytic converters).    I reviewed also Silver Futures market (again Swap Dealers’ Position) – to bring people’s attention to the fact that we might be not too far from equivalent situation, i.e. Silver running for ATH.   The almost (Long > Short) Position for Swap Dealers in Silver creates this new opportunity.

Have a good vacation.

 

Peter

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