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Upside-Downton Inflation

Upside-Downton Inflation

By Michael Every of Rabobank

The US CPI report for August is clearly going to be the major market focus today. Expectations…

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This article was originally published by Zero Hedge
Upside-Downton Inflation

By Michael Every of Rabobank

The US CPI report for August is clearly going to be the major market focus today. Expectations are 0.4% m/m headline and 0.3% core, equivalent to 5.3% y/y and 4.2% respectively. Who, especially among those saying inflation is not a problem, had a 5%+ headline figure pencilled in for this stage in the year?

As a warm-up for that report, replete with all the methodological problems covered here before, consider that the New York Fed’s own inflation survey released yesterday showed median 1-year-ahead inflation expectations increased by 0.3ppts to 5.2%, the tenth consecutive monthly increase and a new series high, and median inflation expectations at the 3-year horizon also increased by 0.3ppts to a new series high of 4.0%. Both increases were broad based across age and income groups. In other words, the public the New York Fed, the home of Wall Street, speaks to, still expects inflation twice the Fed’s target in late 2024.

Of course, median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—is also at new series highs. After all, if inflation is going to surprise in any direction relative to that 4% figure over the medium term, it is likely to be the downside via a biting deflation. That’s a sugar-high boom/bust picture painted back at the start of this year when I discussed frankly laughable “The Roaring 20s” meme, if sold as by ahistorical teenage scribblers as a positive, while pointing out “If so, can you count to 30s?” And let’s agree the political backdrop is still bang in line with that prediction, with even greater polarisation everywhere, and even greater perceived failings on the part of liberal capitalism: any number of “-isms” are confidently building their own alternative socio-economic prospectuses, just as they did 100 years ago. Socialism; communism; Islamism (via the Taliban’s ‘renaissance’); and, as some argue, neo-feudalism – which I will return to in a moment.

But first back to the New York Fed report. Median year-ahead home price change expectations decreased slightly to 5.9% in August from 6.0%, marking the third consecutive monthly decline: so has US house-price inflation peaked? The thought may please the Fed, who are more into pumping stocks --the survey’s mean perceived probability that US stocks will be higher 12 months from now remained unchanged at 39%, showing they have some work to do there-- but it will terrify others. Imagine the RBA: do they think Aussie house prices can rise another 30% this decade, as a hypothetical example? But what will Aussie society look like if so, assuming wages come nowhere near matching that increase? And yet what will the economy look like if house prices don’t rise? After all, that ‘wealth’ (read ‘debt’) effect has been the main fuel in the tank of far too many economies for far too long, as I have gnashed my teeth, pulled my hair, and wailed from Moab about for years. But what do we have to replace it? “I can’t believe it’s not ‘Build Back Better’”.

And while house-price inflation may perhaps have peaked, the survey says this isn’t true for expectations of year-ahead rents, which were up 0.2ppts to a staggering 10.0%; or medical care, up 0.2ppts to 9.7%; or gasoline, up 1.1ppts to 9.2%; or food, up 0.8ppts to 7.9%; or education (college) was up 0.5ppts to 7.0%. Of course, the hypothetical CPI ex-rent, medicine, gasoline, food, and education is still looking benign.

Meanwhile, median 1-year-ahead expected earnings growth fell 0.4ppts to 2.5%, comparable to its February 2020 level, with the decrease was driven mostly by respondents over the age of 40. Mean unemployment expectations --the probability the US unemployment rate will be higher one year from now-- increased by 3.3ppts to 35%. The perceived probability of finding a job if one's current job was lost fell to 54.9% from 57.0%, driven by respondents aged 60 and over. The perceived probability of losing one's job in the next 12 months increased slightly to 12.4% from 12.2%, but fortunately remains near the series low. Yet the probability of leaving one's job voluntarily in the next 12 months also increased to 20.0% from 19.7%.

There is lots more one could dive into in this survey, but now back to my earlier point on neo-feudalism. I very belatedly finished watching ‘Downton Abbey’ last night. Only covering the 20s up to 1926, we see a British society suffering depression, the causes of which rightly do not get much dramatic exposition: “Mrs Patmore, I am sure you will agree the return to the gold standard is a necessary evil to ensure sound money?“Sorry, Mr. Carson, I am too busy working 14-hours a day cooking for the lord and ladies upstairs to notice the anchor for our fiscal and monetary policy.”

What you also see, besides romantic ups and downs, is a society seeing a massive structural shift. The rich are suffering, with great houses being sold off or relying on American dowries to support them, and servants are leaving for better-paid, less-deferential work. The series concludes with even the aristocrats cheering for social and economic progress, and a fairer, more globalized, more modern world. Even Mrs Patmore becomes petit-bourgeoisie with her own B&B, as does staunchly pro-establishment conservative Mr Carson. Some aristocrats actually start to get jobs.

Today, extreme concentrations of wealth and monopoly/oligopoly are being built up rather than dismantled, alongside a new homoploutia (both income and asset rich): and they don’t need the noblesse oblige of full-time servants now swathes of the working class are in the gig economy at everyone’s beck-and-call. A few last, lucky Mrs Patmore’s may squeak in to the buy-to-let property ladder in some places, but the majority of the young face a life of gigging and renting, leaving no assets to their kids; or perhaps having no kids, leaving no society. Meanwhile, social progress is happening at bewildering speed in some places, as massive regression is being seen in others – and often in the same country at the same time.

Of course, as in Downton, all things are fluid. China is acting for ‘common prosperity’; the Biden administration is floating (if not delivering) massive structural increases in social spending; and in the US, Amazon is offering free degrees to some of its employees, a radical extension of Marx’s prediction of the proletariat learning how to rule from capitalists. Moreover, the Financial Times quotes Scott Price, president of UPS International, stating that in response to the inflation --and shortages!--we are seeing, multinational retailers and manufacturers are now regionalizing their supply chains: "A lot of companies are coming to us saying 'where is the best place to put manufacturing and assembly?' There's an understanding that reliance on stretched supply chains puts you at risk." That implies the promise of much more serious inflation in places where the jobs go, and of deflation where the jobs leave.

So try to grasp the scale and pace of structural changes occurring in the environment in which inflation is, or isn’t, created. For now, everything is upside-downton, but where it ends up(ton) is still an open question. Is a mechanistic return to a 2% CPI trend our future reality or already ancient history?

Tyler Durden Tue, 09/14/2021 - 13:35

Precious Metals

September Gold Forecast Update: “Only” 68 Analysts Now Forecast Gold Going To $3,000 Or More (+19K Views)

Many analysts are projecting that gold will be going at least as high as $3,000/ozt over the next few years. One analyst even claims that gold will spike…

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More and more analysts are projecting that gold will be going at least as high as $3,000/ozt over the next few years. One even claims that gold will spike up to $87,500/ozt.! Below is a revised list of their names and stated rationale for each of their forecasts.

By Lorimer Wilson, editor of – Your Key To Making Money!

$50,000+ Gold

1. Jim Sinclair: $50,000 in 2025 and to $87,500 by 2032

  • In a recent YouTube video Sinclair said that, with so many U.S. Dollars being printed to uphold the economy as a result of COVID-19, that Gold will rise to $50,000/ozt. (i.e. go “straight up” in Sinclair’s words) at the end of the 45-year gold cycle which is coming up in 2025 and rise up to $87,500/ozt. by the end of 2032. Source

$25,000 Gold

1. Erik Lytikainen: $25,000 by 2030

  • “We will not be surprised to see $25,000 per troy ounce of gold by the year 2030.  It will likely be a volatile ride higher, with large drawdowns along the way.” Source

2. Martin Armstrong: $25,000

  • “Gold should theoretically sell for $25,000 a troy ounce, given the monetary prolificacy since 1980”…in reference to the ever soaring $3.3 Trillion U.S. budget this year, alone. Source

$20,000 Gold

1. Goldrunner: $20,000 between mid-2028 and end of 2029

  • “As a result of the recent massive paper money printing, our chart work suggests that gold could possibly spike up to as high as $20,000 per troy ounce – or even a bit higher – some time between mid-2028 and the end of 2029.” Source

2. Pierre Lassonde: $20,000 in 2 – 5 years

  • “Gold prices should skyrocket to much higher levels, even $20,000/ozt. in two to five years’ time, as gold reaches a price level close to the level of the Dow Jones Industrial Index.” Source

3. Egon Von Greyerz: $20,000

  • “I believe a gold price of $20,000/ozt. is very probable, even without high inflation.” Source

4. Leigh Goehring: $10,000-$15,000 by 2027-28

  • “Our target is between $10,000-$15,000 per troy ounce.,,[by] 2027-28.” Source

5.  Briton Hill: $5,000-$20,000 in next 5 to 10 years

  • “You can’t produce trillions of dollars with 0% interest rates and not introduce inflation. Long-term, we could be entering a cycle similar to the 1970s, where the precious metal sector rose by thousands of percentage points, and if we see something like that happen again in the next 5-10 years, we could easily see $5,000, $10,000, even $20,000 gold,” he said. “Gold could easily hit $20,000 per troy ounce in the next decade.” Source

$10,000 Gold

1. James Rickards: $10,000

  • “$10,000 per troy ounce is not pie in the sky. It’s not a number I pulled out of a hat to get headlines. It’s the actual mathematical implied non-deflationary price of gold.” Source

2. Daniel Oliver: $10,000

  • “The money to push gold over $10,000 per troy ounce has already been printed and now they are going to print more…No doubt strong fiscal and monetary intervention may extend its life for a time, but then the ultimate price objective for gold will then be markedly higher.” Source

3. Max Keiser: $10,000

  • To deal with the disaster of “trash fiat money” choking the global economy, a new gold standard will need to be introduced “and to make it work, we will see gold’s price top $10,000 per troy ounce.” Source

4. Adam O’Dell: $10,000

  • “The price is guaranteed to hit near $10,000/ozt..” Source

5. AG Thorson: $7,000 – $10,000

  •  “By the end of this decade, we expect gold to reach $7,500 – $10,000 per troy ounce.” Source

6. Peter Schiff: $5,000 to $10,000

  • Schiff projects a price of between $5,000 and $10,000 per troy ounce, and says the Dow Jones Industrial Average, which is now valued at about 12 times the price of gold, will trade at just 7.5 times instead. Eventually, he sees gold and the Dow trading at even money. Source

7. Don Durrett: $3,000 to $10,000

  • “My price target for gold is somewhere between $3,000 and $10,000 per troy ounce.” Source

8. David Smith: $10,000

  • “Gold could reach US$10,000 per troy ounce by the end of the bull market.” Source

9. Bob Kirtley: $10,000

  • “My target has been $10,000/ozt. since June 2006, so at that point, an exit strategy will be executed, hopefully with some handsome profits.” Source:

10. Scott Minerd: $5,000 to $10,000

  • “As chaotic price swings of the crypto world push investors back into gold and silver, the precious metals will start to build momentum, with the ultimate gold price target set at $5,000-$10,000 per troy ounce.” Source

$7,000 -$9,000 Gold

1. Florian Grummes$8,000 to $9,000 in 5 to 10 years

  • “We could end up having gold at $8,000 to $9,000 per troy ounce in five to 10 years.” Source

2. Ronald-Peter Stoeferle and Mark Valek: $4,800 to $8,900 by 2030

  • “The proprietary valuation model shows a gold price of $4,800/ozt. at the end of this decade, even with conservative calibration. Should money supply growth develop in a similar inflationary manner to that of the 1970s, a gold price of $8,900/ozt. is conceivable by 2030.” Source

3. Graham Summers: $8,000

  • “Gold first rallied about 630% from 2003-2011. It then corrected about 43% before bottoming in 2015 at $1,060/ozt.. If it follows a similar second leg up this time around, it’s going to ~$8,000 per troy ounce before it peaks.” Source

4. Hubert Moolman: $7,758

  • “In my opinion, it is virtually guaranteed that gold will again catch up with the Dow’s performance since 1913, and significantly surpass it just like in the 70s. This means we will likely see gold reach $7,758/ozt. (in the near future) and eventually go on to reach multiples of that high.” Source

5. Gov Capital: $5,837 by 2023; $7,220 by 2024; $8,531 by 2025

  • “5 year gold forecast: $8530.74/ozt.” Source

6. Jason Hamlin: $4,000 to $8,000 by 2025

  • “We fully expect to see the gold price close out the year 2025 somewhere between $4,000 and $8,000 per troy ounce.” Source

7. Jeff Clark: $3,000 to $8,000 in 5 years

  • “Potential 5-year high: $3,000 to $8,000 per troy ounce.” Source

8. Charlie Morris: $7,166

  • “A bullish target of $7,166/ozt. is both logical and plausible.” Source

9. Tom Fitzpatrick: $4,000 to $8,000

  • “We see no reason why this bull market cannot be as strong as the prior two averaging a multiple of eight times over an average of 7 years. Translating that to the $1,046/ozt. low in 2015 would come up with a number north of $8,000/ozt. possibly in as little as the next 2-3 years. Even if that sounds aggressive, a move similar to what we saw in 2009-2011 would suggest close to $4,000/ozt..”

10. Mike McGlone: $7,000 by 2025

“From 2001-2011, gold advanced about 7.5 times, which if repeated would bring it to around $7,000/ozt. in 2025.” Source

$4,000 – $5,000 Gold

1. Rob McEwen: $5,000

  • The founder of Goldcorp Inc., McEwen predicts that gold will soar to $5,000 a troy ounce, bolstered by a weaker dollar and waning demand for trendy assets like pot stocks. Source

2. Victor Dergunov: $5,000 in 3-5 years

  • “Gold at $5,000/ozt. in 3-5 years seems plausible, and it is likely to continue to go higher after that.” Source

3. Dan Popescu: $5,000 in 5 years

  •  “Gold price could break above $5,000/ozt. in the next 5 years.” Source

4. David Morgan: $5,000 before the end of the decade

  •  “Gold could hit $5,000 a troy ounce this decade, especially as the greenback loses purchasing power.” Source

5. Moe Zulfiqar: $5,000 by 2030

  • ” It wouldn’t be shocking to see gold at $5,000 per troy ounce, or more, by 2030. ” Source

6. Brian Whitfield: $5,000 by 2030

  • “I feel I am safe, and being conservative, in saying that gold should be trading between $3000 – $5000 per troy ounce in ten years. Should the U.S. dollar fail and/or the U.S. dollar loses the coveted global reserve currency status and/or even the loss of the petrodollar, gold could hit these level far sooner.” Source

7. Chris Wood: $5,386

  • “The gold price of US$850/ozt. at the peak of the last secular bull market in gold in January 1980 was then equivalent to 9.9% of US disposable income per capita. The gold price is now just 3.6% of US disposable income per capita. Therefore, to reach 9.9% of US disposable income per capita means gold should rise to US$5,386/ozt.. Source

8. Ole Hansen: $4,000

  • “$4,000/ozt. probably is a little bit far-fetched as the world looks right now, but if you look years into the future, then that is possible because the repercussions of what we’re going through right now with the pandemic and the aftermath is going to be something that’s going to be felt for at least this generation and potentially beyond.”  Source

9. Geraldo Del Real: $3,000 to $5,000

  • “I actually think $3,000 to $5,000 per troy ounce is very reasonable.” Source

10. Thomas Kaplan: $3,000 to $5,000 by 2030

  • “Gold prices could rally as high as $3,000 to $5,000 per troy ounce within a decade.” Source

11. David Rosenberg: $3,000 to $5,000

  • “A $3,000 to $5,000 per troy ounce fundamentally justified based on the facts we have today.” Source

12. Gary Christenson: $3,000 to $5,000 by 2022

  • “A reasonable “status quo” valuation for gold in 2021 is around $3,000/ozt..  Prices will fall below and occasionally spike much higher than the valuation so a gold price of $5,000/ozt. in 2020 – 2022 is plausible.” Source

13. Shaun Djie: $3,000 to $4,000 within 10 years

  • “In the next 10 years, gold will continue to be volatile. Gold could trade anywhere between the levels of $3,000 or $4,000 per troy ounce in the next ten years given how much cash will be potentially put into the economy.” Source

14. Frank Holmes$4,000 in 3 years

  • “The yellow metal is set to rally in the same fashion as in the aftermath of the last recession and, if cycles are exactly the same, gold could go to $4,000/ozt.”. Source

15. Diego Parrilla: $3,000 to $5,000 in the next 3 to 5 years

  • Unprecedented monetary stimulus is fueling asset bubbles and corporate debt addiction — rendering interest-rate hikes impossible without an economic crash. In the ensuing market mania gold could rise to $3,000 to $5,000 per troy ounce in the next three to five years. Source

16. Massimiliano Bondurri: $3,000 to $5,000 in 3 to 5 years

  • Massimiliano Bondurri, a capital founder and a CEО of SGMC, believes an ounce of gold will rise in price to $3,000 -$5,000 per troy ounce in the next 3-5 years. Source

17. Eric Fry: $3,000 to $4,000

  • ‘When this ballgame ends, gold with be trading for at least $3,000 a troy ounce, and an extra-inning affair would not surprise me — lifting the gold price past $4,000/ozt..” Source

18. Michael Cuggino: $4,000

  • Cuggino, CEO of the Permanent Portfolio Family of Funds, a $1.9 billion mutual fund that is conservatively run and rated four stars by Morningstar, says it would “not be an unreasonable move” for gold to breach $4,000/ozt.. Source

19. Kirk Spano: $3,000 by mid-decade; $5,000 possible

  • “$3,000/ozt. mid-decade [with] upside potential to $5,000 per troy ounce.” Source

$3,000 – $3,500 Gold

1. Chris Vermuellen$3,500

  •  “Expect to see an ultimate peak price in gold well above $3,500/ozt..” Source

2. Victor Dergunov: $3,500 by end of 2022

  • “When we consider that the monetary base is likely to surge to around $8 trillion by year-end, we can conclude that this will give us around a 10,000% increase from the roughly $80 billion in monetary base the U.S. had in the early 1970s. Likewise, we can apply a similar percentage to the $35/ozt. gold price around the same period. A 10,000% increase from the $35 gold price would put gold prices at around $3,500 per troy ounce, roughly 100% higher than where the price of gold is today, [and] I think it is quite likely that we will see gold prices appreciate to $3,500/ozt. by the end of 2022.” Source

3. Charles Gibson$3,281

  • “Since 1967, the price of gold has shown an extremely strong (0.909) correlation with the total U.S. monetary base. The more dollars that either are, or could be, in circulation, the higher the expected gold price. With the total US monetary base now closing in on US$5.5tn the gold price could very reasonably be expected to rise to as high as US$3,281/ozt.” Source

4. Bank of America: $3,000 by end of 2021

  • BoA raised its 18-month price target for gold to $3,000 a troy ounce citing the prospects of endless monetary expansion from central banks, including the Federal Reserve, to limit the economic damage from the COVID-19 pandemic. Source

5. WingCapital Investments: $3,000

  • “Using the post-2008 bull market as a guideline during which gold more than doubled within the ensuing 3 years, $3,000/ozt. would be a reasonable long-term target in our opinion.” Source

6. Barry Dawes: $3,000 within 2 to 3 years

  • “I expect to see $3,000/ozt. in gold over the next 30 months.” Source

7. Brian Lundin: $3,000 by 2024

  •  “I think we’ll set a new record in real terms, exceeding $3,000/ozt., at some point over the next four years or so.” Source

8. Byron King: $3,000

  • “I think Bank of America is on track. I don’t think there’s any question gold will see $3,000/ozt.. As with all things in life, it’s just a question of how long it will take.” Source 

9/10. Ben Morris and Drew McConnell: $3,000

  • “$3,000 per troy ounce isn’t a long shot.” Source

11. Alex Mashinsky: $3,000 by end of 2021

  • Mashinsky sees gold climbing to $3,000/ozt. by the end of next year but admits that even more gains are possible depending on how bad the currency debasement gets. Source

12. Robert Kiyosaki: $3,000 within 1 year

  • “I predict $3,000/ozt. gold in 1 year.” Source

13. Stewart Thomson: $3,000

  •  “Queen Gold is assured of launching above the key $2,000/ozt. price zone, ready to begin a rocket blast towards my medium-term $3,000/ozt. target!” Source

14. Mark O’Byrne: $3,000 in next 12 months

  • “Gold is quite likely to climb to $3,000/ozt. in the next 12 months.” Source

15. John Ing: Higher than $3,000

  • “We expect gold to trade higher than $3,000 a troy ounce due to a lower greenback and solvency concerns.” Source

16. Joe Foster: $3,200 to $3,400

  • “We…believe this to be a deflationary cycle and both recent deflationary gold bull markets suggest that a price over $3,000 per troy ounce is reasonable. In fact, if one believes, as we do, that the current central bank stimulus to fight the impacts of the COVID-19 virus, along with elevated levels of systemic risks, are similar to those during the global financial crisis, then $3,400/ozt. may be the target for this bull market.” Source

17. SomaBull: $3,000

  • “The money supply is quickly heading to levels that would support a $3,000/ozt. gold price well in excess of fair value by the time this bull market is exhausted.” Source

18/19. Yvo Timmermans and Paul Van den Noord: $1,900 to $3,000 over next 18 months

  • “We anticipate gold will fall within a bandwidth of $1,900 and $3,000 per troy ounce over the next 18 months.” Source

20. Jordan Roy-Byrne: +$3,000

“Gold is currently building the handle portion of a cup and handle pattern, which we anticipate could break to the upside sometime in 2022 or early 2023. The measured upside target is $3,000/ozt., but these charts argue the run could go farther.” Source

21. Adam Trexler: $3,000

“With inflation coming, we’ll see gold over $2,500/ozt. in real dollar terms but we’ll see a devaluing of the dollar…[and] if you see 10% inflation, the dollar number value of gold could be much higher. I don’t think $3,000/ozt. gold is impossible and, if we see a hyperinflation scenario, it could be significantly higher.” Source

What do you think of the above price forecasts? Have your say in the “Comments” section below. Also, if I have missed other analyst forecasts (they must be within the last year) please mentioned them below and I will include them in a future article.

About Lorimer Wilson

Lorimer Wilson with Gold BarLorimer Wilson is an economic & financial commentator who has written numerous articles on economics, finance, precious metals, and the cannabis stock sector. He is the Managing Editor of, a site that provides a selection of the internet’s best finance articles in an edited, reformatted and abridged format to ensure a fast and easy read. has joined to provide you with individual company research articles and specific stock recommendations in addition to munKNEE’s more general informative articles on the economy, the markets, and gold, silver and cannabis investing.
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Precious Metals

Are $1 Trillion Coins Coming Rather Than More Federal Debt?

Credit risk out of China and debt ceiling drama in Washington are driving precious metals markets this week. Gold and silver attracted some significant…

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Credit risk out of China and debt ceiling drama in Washington are driving precious metals markets this week. Gold and silver attracted some significant safe-haven buying as equity markets succumbed to selling.

The storyline being trumpeted in the financial media is that a government shutdown and possible debt default loom in October unless the U.S. Senate comes to an agreement on raising the debt ceiling.

There is some truth to these headlines. And we would certainly include unsustainable government debt among the top reasons for investors to own physical precious metals.

But let’s get real. The odds of an actual default on U.S. government bonds in 2021 are slim to none.

Like so many times before, brinksmanship will almost certainly give way to compromise. The debt ceiling will be raised one way or another.

Right now, what we are witnessing is mostly political theater.

Republicans are posturing to show they are opposed to Democrats’ spending agenda. And Democrats are posturing to force Republicans to vote in favor of raising the debt ceiling.

The reality is that establishment Republicans approved most of the spending that is now being financed. And Democrat Leader Chuck Schumer could authorize the government to undertake additional borrowing through a procedural vote in the Senate at any time.

“Democrats have the votes to do it on their own,” left-leaning CNN acknowledged.

But by doing so, “they would be getting all the worst parts of raising or suspending the debt ceiling with none of the benefits.”

By “benefits,” they mean political cover for vulnerable Democrats in the mid-term election campaign.

Meanwhile, CBS News is reporting that a “U.S. debt default could wipe out 6 million jobs and $15 trillion in wealth” based on calculations by Moody's Analytics.

Janet Yellen is warning of an “economic catastrophe” in the event that Congress fails to raise the government’s credit card limit.

These alarmist warnings are misleading. Government bonds and the dollars in which they are denominated are claims on wealth – not wealth itself.

In a sovereign debt collapse, purchasing power is transferred away from bondholders to the benefit of taxpayers who are no longer on the hook for paying interest and principal.

Of course, a domino effect would hit financial markets and sectors of the economy sensitive to credit risk. The financial system would be forced to reorganize itself on sounder footing – a painful process which wouldn’t necessarily be a bad thing in the long run.

But a default won’t be allowed to happen.

Even if the Senate fails to act, the Treasury Department and Federal Reserve could invoke emergency measures on their own.

Some unconventional options being discussed involve precious metals – though not in the sense of returning to sound money.

One proposal would have the Treasury Department mint platinum coins with an arbitrary face value of $1 trillion. These coins could then be deposited at the Federal Reserve, which would credit the government with the trillions of dollars it needs to pay its bills.

Voila, no new debt!

As wacky as this idea sounds, it was first floated by hard leftists during the Obama administration as a way around political gridlock over the debt ceiling, and it is again being pushed as a possible last-ditch maneuver.

Of course, individuals who hold platinum American Eagle coins (face value $100) wouldn’t become instant trillionaires. But platinum and other hard assets could still move markedly higher in dollar terms based on inflationary fears if the Fed used its digital printing press to buy coins the U.S. government declares are worth a trillion dollars.

Regardless of what form it takes, the Fed stands ready to print all the currency the government needs to pay its bills.

Former Fed chair Alan Greenspan has said that a default is essentially impossible under our monetary system.

Instead of fearing a formal U.S. default, investors should fear the inflationary consequences of averting it. A lot of new currency creation will be coming down the pike in the years ahead to keep the $28.8 trillion (and growing) national debt propped up while enabling politicians to continue running multi-trillion-dollar annual budget deficits.

The greatest default risk of all is that of the Federal Reserve reneging on its obligation to maintain a stable currency.

With no meaningful grounding anymore in gold or other precious metals, there is nothing to stand in the way of a precipitous decline in the Federal Researve Note's value – especially since a currency devaluation is more convenient for politicians than balancing the budget.

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Nomura Reveals ‘The Flow To Know’ As Markets Reverse From Selling To “Big Rally”

Nomura Reveals ‘The Flow To Know’ As Markets Reverse From Selling To "Big Rally"

In the end, despite a generally unexpected upward shift in…

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Nomura Reveals 'The Flow To Know' As Markets Reverse From Selling To "Big Rally"

In the end, despite a generally unexpected upward shift in the FOMC dots which pushed the median 2022 dot to indicate one rate hike next year (and another 2 each in 2023 and 2024), the outcome was not nearly the "hawkish surprise" that Nomura's Charlie McElligott warned could tip the market sharply lower... or higher (especially since the market believes that the Fed will end its hiking plans well before they are fully executed, giving the Fed just 1% of breathing room).

Commenting on the FOMC announcement this morning, the Nomura quant summarized it as a “low surprises” yet still incrementally more "hawkish" Fed:

  1. November taper in-line
  2. Taper length marginal surprise with goal to end mid-year, but still implies near the “expected” $10B / $5B per month reduction
  3. Where a more “hawkish” dot plot is being viewed somewhat skeptically by the market on account of “a lot of hikes in a short period of time” with 6.5 hikes by end ’24, in addition to upcoming voter / non-voter member turnover which muddles dovish / hawkish balances of voters
  4. Continued “both sides of mouth” language from Powell, yet again going out of his way to separate the “end of tapering” from the beginning of rate hikes, while noting the policy rate as still accommodative)

All-in, McElligott called the announcement a “low surprise” Fed, which cleared us of “event-risk” while avoiding any sort of “(hawkish) Rate Shock,” as 10Y yields continue their chop inside the well-established range "despite obvious impacts on curves of course, as front (Reds) through belly reprices further, while long end / duration rallied and closed at best levels on the day—because ultimately, taking multple steps closer to removing accomodation ultimately means “tighter financial conditions” that will moderate the economy down the road."

Indeed, one look at the 10Y year today suggests that the market is finally waking up with the 10Y surging to 1.40%, the first time since July.

So with a removal of the primary catalyst for larger rate volatility, the Nomura strategist notes this also "further closes the recent (and awesome) “window for volatility expansion” within the Equities Vol complex, which opened around last week’s Op-Ex cycle turn, and brought with it incredible (and long-awaited) Vol / Stock movement (SPX -4.1% in 3 days hi / lo)."

This then takes us back to a point McElligott has made repeatedly in recent days, namely the “conditioned per back-test” appearance of “reflexive vol sellers” in arresting the crescendoing US Equities selloff peaking which were cratering Monday afternoon, which materialized most notably in the form of Put sellers harvesting rich downside Vols into the accelerating drawdown, in addition to funds monetizing their actual downside hedges, both of which Nomura pointed out before created lots of Delta to buy in the process which then rallied the tape off the lows into the closing bounce

However, in a notable departure from this downside Vol harvesting and hedge monetization, one small, baby-step positive development observed by Nomura is that the SPX Put Skew has come off that prior 99.9%ile “boil” and inflected  into something at least a touch less extreme, with McElligott now seeing SPX 1m Put Skew @ 96.8%ile / 3m Put Skew @ 96.9%ile, down from near record highs.

Additionally, the bank continues to see more profit-taking from “long vol” positions in the VIX ETN space, with the Net (long) Vega position over the past week having decreased by 8.1mm as traders monetized into the Vol spike.

Perhaps most notably, we have also witnessed saw the appearance of some rare buyers of equity upside vol yesterday into the rally, when about an hour into yesterday’s US cash session, 3 large SPY Call Spreads traded, creating ~$1 billion of Delta to buy across aggregated hedges:

  • Buyer of 43k SPY Oct 443/452 Call Spreads for $3.89 (463M delta, 670k vega)
  • Buyer of 32k SPY Nov 448/460 Call Spreads for $4.36 (236M delta, 635k vega)
  • Buyer of 26k SPY Dec 31st 448/470 Call Spreads for $7.91 (263M delta, 900k vega)

There were several other bullish expressions, including someone taking bullish shots in the "utterly left-for-dead" China, with FXI Jan 42 Calls bought and the sale of 7700 EEM Jan 51 Puts.

Yet despite the return of such scattered bullish flows, McElligott notes that there remains much angst in the Vol space (Skew still roofed as downside demand remaining extreme), versus still “pervasive skepticism” towards broad Equities upside index / ETF / sectors / industries (Call Skew still nuked)

  • SPX (Mega-Cap US Eq) 1m Skew 98.8%ile, 3m Skew 99.1%ile; vs no upside love, with 1m Call Skew 0.5%ile, 3m Call Skew 1.3%ile
  • QQQ (Nasdaq / Secular Growth / Tech) 1m Skew 99.0%ile, 3m Skew 96.7%ile; while 1m Call Skew just nowhere at 0.8%ile, 3m Call Skew 4.4%ile
  • IWM (Russell / Small Cap) 1m Skew 86.6%ile; no love for upside tho with 1m Call Skew 16.5%ile
  • FXI (China) 1m Skew 92.8%ile, 3m Skew 82.9%ile; but still seeing negligible desire for upside with 1m Call Skew 14.5%ile
  • FWIW, the only “upside tail” / bid to Call Skew remains parked in those “inflation sensitive” idiosycratic spots like OIH / XOP / XLE / SMH

Looking at this latest flow menu, McElligott notes that the bottom line here is that "we are seeing *some* normalization in select vol metrics (e.g. term structure in SPX and QQQ, or aforementioned “off the worst” levels in extreme Put Skew)…but we continue to price-in “stress” and definitely not giving anything close to an “all clear” just yet." This dynamic matters because it will continue to “drag up” trailing realized vol which can then continue to both constrain VaR/lead to netting- and gross-down behavior as well as drive further near-term de-allocation pressure from Vol Control.

Indeed, and in keeping with McElligott's recent warning that vol-control has a lot to sell here, his Vol Control model estimates a sale of $9.8B SPX futs yesterday from the universe, in aggregate bringing total selling to $20.2B over the past 2 weeks.

Yet while vol-control rebalancing flows remain a bearish concern, dealer Gamma is turning increasingly favorable.

To be sure, we saw the impact of the still-extreme negative Dealer Gamma vs spot across SPX SPY, QQQ and IWM in the +2% rally off the yesterday morning lows, with what McElligott dubbed “spastic” accelerant flow which required more buying the higher spot went.

But now that spot is higher and billions in Delta has been added, the market is in a far more comfortable spot; indeed, the latest options positioning analytics now shows that SPX / SPY Dealers are back in a more stable “long Gamma vs spot” position ($1.8B, 33.7%ile, flips below 4371)...

...while still “short Gamma vs spot” in QQQ, but getting close to home (-$499.9mm, 2.6%ile, but flips positive above 372.16, which is mere basis points away).

It is this normalization in gamma that McElligott concludes sets us up for the “stability now, big rally later”: as stocks continue to rise, the positive feedback loop emerges as the resumption of “long Gamma” stabilization from Dealers beget more overwriting/ options selling flow from the usual suspects, which in turn leads to a reversal over the next few weeks out of what has been this local “realized vol rallying up to implied” dynamic that is behind much of the recent selling. When we do, expect to see the now traditional resumption of tighter daily ranges and lower rVol. Looking out; looking out 2 weeks to 1 month is when he expects "lumpy re-allocation flows from Vol Control types" who also join the bullish fray and the slow, steady and never-ending meltup makes a triumphal return.

Tyler Durden Thu, 09/23/2021 - 12:10
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