by Greyson Geiler | April 10, 2023
Crypto currencies have become quite the enigma in the modern financial world. Many people are fashioning careers off the crypto industry – some getting wildly rich and some losing entire fortunes or even getting murdered for mysterious reasons. Of course, the get-rich-quick part of crypto isn’t revolutionary. That concept has plagued the entirety of the human experience. But the revolutionary technology involved in crypto is, well revolutionary…
In a nutshell, the compelling part of cryptocurrencies is the blockchain technology that aggregates the entirety of transaction history within the currency unit. When it is on a decentralized open ledger, it is a beautiful tool for economic freedom. An open ledger cryptocurrency with limited supply such as Bitcoin has no Jay Powell (Fed Chair) or Andrew Bailey (Head of Bank of England) to tell you how many currency units are going to be produced. It has no master that can expand or contract supply of units at will according to their analysis of the economy or their political will. A decentralized crypto account can’t be shut down at the will of politicians or regulators for whatever purpose they deem appropriate – like bank accounts can be now https://www.cbc.ca/news/politics/emergencies-act-banks-ottawa-protests-1.6353968
The problem comes when the Central Bankers of the world twist the technology to their will for more control of economies and populations as is their stated intention. The tool for this control is the CBDC (Central Bank Digital Currency.) We wrote more than a year and a half ago that this process is underway. We mentioned then that we were not afraid of an imminent change to our monetary system. That is still the case today as the bankers and politicians won’t try a major monetary overhaul without a crisis. We are OK for the near term. But we do want raise our level of concern. Americans need to learn of the dangers of the monetary reset that is lurking in the shadows. That is the only way to avoid it.
Let’s review what a CBDC could mean for the average American citizen:
- Your “money” would be a direct liability of the Federal Reserve with no banking intermediary.
- Your “money” could have an expiration date.
- Your “money” could have a limited number or type of items/services it could purchase.
- Your “money” could be frozen or seized by a regulator (no bank compliance would be necessary).
- Your “money” could be taxed, charged fees or even a negative interest rate beyond your control.
- Your “money” could be controlled/prohibited geographically – of no value overseas, for example.
- You would have NO economic autonomy or privacy – you COULD BE controlled completely.
“We don’t know who’s using a $100 bill today and we don’t know who’s using a 1,000-peso bill today.
The key difference with the CBDC is the central bank will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability and also, we will have the technology to enforce that.”
BIS (Bank for International Settlements) GENERAL MANAGER AUGUSTÍN CARSTENS
Although laws may be initiated to ensure the worst of this list is not immediately implemented – the possibility is still a danger – the power would be too enticing for regulators to not utilize it. This would be a complete endgame for the pseudo free market system we have in the West. CBDCs could be an avenue for instituting totalitarian control of the populace. The good news is that overseas attempts by other central banks to institute CBDCs are not going well for the authorities…
https://www.coindesk.com/consensus-magazine/2023/03/06/nigerians-rejection-of-their-cbdc-is-a-cautionary-tale-for-other-countries/
The bad news is that the development of a Federal Reserve crypto U.S. dollar has gone into the next gear. The Biden Administration issued an executive order a month ago that I suggest everyone read: https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/09/fact-sheet-president-biden-to-sign-executive-order-on-ensuring-responsible-innovation-in-digital-assets/
The fact that this is going out as an executive order should raise warning flags. The fact that this order is riddled with ambiguities is no surprise when dealing with a government giving itself more power – but the fact that climate change references are sprinkled into it should cement in your mind that this is has little to do with ensuring a developed monetary system for your benefit but is actually about government control. It doesn’t matter what your opinion of that state of the climate is – that has nothing to do with a functioning monetary system.
Let’s be clear. We don’t want to be alarmists, but we believe that there should not be a CBDC in the United States – EVER!
Things are in the works to hold the line in a good way and no matter your political opinion of Ron DeSantis, Ted Cruz and Tom Emmer they are seemingly anti – CBDC. We haven’t read the legislation to avoid CBDC that they are proposing, but we hope it is as it is advertised and only as advertised to stop the implementation of a CBDC. More officials will join the anti-CBDC movement if pressured from citizens…
The more awareness that is spread about what a CBDC could be used to for the better! Groundwork is being laid down for the U.S. to go down the path of the CBDC and we need to stop it. You don’t have to believe that the 9/11 attacks in New York were an inside government job to have a problem with our officials. The Patriot Act that we got shortly after 911 was anything but Patriotic. It gave government at many different levels totalitarian power during an “emergency.” Now two decades later, many of your civil liberties are relics of a bygone era. https://theweek.com/articles/913982/when-crisis-powers-become-permanent. It is not irrational to be fearful of executive orders and legislation promoting Fed-sponsored digital currencies…
We need to resist a reset of our monetary system with CBDCs. Things average citizens can do include buying gold and using cash as much as possible because that is the best economic freedom we have.
Please forward this to as many people as you can!!
Regards and good investing,
Greyson Geiler
by Greyson Geiler | April 3, 2023
The first quarter is now in the books and we start into the second quarter and earnings season. The stock market finished the first quarter on a strong note and many money managers are scratching their heads. There is a lot of negative sentiment in the financial press, and many expect the markets to struggle with all of the headwinds for the economy lead by higher interest rates.
We have written repeatedly about the inverted yield curve – two-year interest rates higher than ten-year interest rates. Although historically that has been a great indicator of pending recessions, we haven’t fallen into that yet with this iteration of the inverted yield curve. The earnings season coming will be very interesting according to Refinitiv – a global provider of financial market data, the S&P 500 earnings per share will decline 4.6% in the first quarter of 2023 as compared with a year earlier, but our guess is it will be surprisingly strong which will justify the resilience of the stock market recently.
One curve ball that just got thrown at the world economy over the weekend was a surprise cut in crude oil production announced by OPEC. On Sunday, Saudi Arabia said it would start “a voluntary reduction” in its production of crude oil as a precautionary measure to maintain the stability of the oil market. The collective output cut by the nine members of OPEC+ totals 1.66 million barrels per day and they have increased their price estimate of Brent crude to $95 for the end of the year. Obviously, this is concerning from the perspective of inflation as the central banks around the world have been struggling with since the beginning of 2022. Crude oil is of course, one of the more critical inputs of world economic output so when the market price starts jumping it is of concern – take a look…
Crude oil prices jump as OPEC is flexing their muscles and there isn’t much we can do about it. Strategically, the U.S. Government built the “Strategic Petroleum Reserve” this is from the U.S. Gov energy website…
The Strategic Petroleum Reserve (SPR), the world’s largest supply of emergency crude oil was established primarily to reduce the impact of disruptions in supplies of petroleum products and to carry out obligations of the United States under the international energy program. The federally-owned oil stocks are stored in huge underground salt caverns at four sites along the coastline of the Gulf of Mexico. The sheer size of the SPR (authorized storage capacity of 714 million barrels) makes it a significant deterrent to oil import cutoffs and a key tool in foreign policy.
Russia is by some measures the number one exporter of energy in the world. After the Russian invasion into Ukraine, the Biden Administration started releasing crude oil from this reserve to combat the prices you see on the chart above. That’s what it was built for, we get it. What we don’t get is why that crude hasn’t been replaced. Again, referencing the chart above crude oil prices calmed down to the point of trading for weeks in the $65 range. We have heard talk of replacing the more than 250 Million barrels that were depleted. The Energy Department did a press release in December about repurchasing – but we don’t see that any of repurchases have occurred…
Now with OPEC rigging deals for crude oil sales outside the U.S. dollar and slowing production down, it is concerning that price is taking off and we are still light on our emergency supplies.
The Energy Department’s own website hasn’t even updated the front page of the SPR explanation https://www.energy.gov/ceser/strategic-petroleum-reserve. The second paragraph refers to the 2011 reduction of the SPR as being the most recent historically. It sure looks like someone is asleep at the wheel with the management of the SPR and that is concerning considering the importance of crude oil for our day to day lives. Sprinkle on top the politicization of energy and the recent decrease in research and development in the nasty fossil fuel world and it seems things might start to get complicated.
Overall, the financial markets have been holding together remarkably well considering the challenges domestically and abroad. We are continually on the lookout for cracks in the dam and energy supplies are definitely something to keep an eye on. In the meantime continue to rebalance portfolios if there is a risk imbalance and make sure to own some gold!
Regards and good investing,
Greyson Geiler
by Greyson Geiler | March 27, 2023
The famous American financier J.P. Morgan famously said in his testimony in front of Congress in 1912 “Gold is money. Everything else is credit.” It’s interesting how much the world of finance has changed and yet this statement still rings true…
Barter economies in early historic times gave way to the efficiencies brought by using money – so it is useful to start with a definition of money. Going all the way back to Aristotle we have the ideas that money serves as 1) a medium of exchange 2) a unit of account and 3) a store of value. The archetypical form of money throughout the history of civilization has been gold and silver coins. Along the way other commodities served the same purpose for periods of time in specific locations – such clamshells, or tally sticks or cattle and grain – but societies reverted back to precious metals. They were the original world’s reserve currencies. The British and American governments effectively demonetized silver yet gold remains. Central banks all over the world hoard gold to this day and some of them are actually on a buying spree.
Throughout history many different credit forms of money have been developed and many of them extremely useful for extended periods of time. In the end all forms of credit default, however. The U.S. dollar used to be backed by gold – now it is simply a different form of credit. For decades now, the Federal Reserve and other central banks have been backstopping all kinds of credit with more credit and the end result is the decline of the currency/currencies. Here is a snapshot of the value of gold in U.S. dollar terms since they were officially separated in 1971…
This shows the deterioration of the value of the U.S. Dollar. Gold’s purchasing power is much more constant, so the change is really the deterioration of the dollar. Keep in mind – this is a 52-year chart. We are not predicting the near-term price of gold or saying that U.S. dollars are doomed to be worthless in short order. But with recent bank-run fears/issues we thought this was appropriate timing to address the issue of what is happening in our monetary system.
Obviously, the U.S. dollar is still the mechanism by which we pay for the goods and services day by day living our lives. That is not going to change any time soon. Monetary system has proven to be surprisingly resilient considering the madness of the last few years. As we have mentioned repeatedly in the last months, we feel that dooms day fears are overblown and now is not the time to panic.
However, we are concerned about the value of the currency going forward. One of the biggest reasons for that is the Fed’s reluctance to allow defaults to happen all across the business and banking world that really should happen. The Fed is changing their own rules – and shooting from the hip doing it. They decided to backstop deposits at insolvent banks on the fly – they overrode their own rules of insuring $250K in per-account deposits. They are transferring all sorts of risks – interest rate risks, business risks, duration risks, credit risks, etc. away from where they have always been in a market-driven system onto the value of the currency itself. A cleansing of the system by defaults could theoretically fix the risk-transfer issue. But we have been avoiding it for so long with so many system-wide bailouts, it is reasonable to fear that situation as a financial Armageddon of sorts. The Fed has backed itself into a corner of being forced to continually bail out “too big to fail” type businesses.
Gold is an alternative because gold is the ONLY financial asset that has no counter-party risk. The dollar is on the liability side of the Fed’s balance sheet. Shareholder equity is on the liability side of a publicly traded company’s balance sheet. Bonds are obviously the liability of the issuer. Gold is simply money…
Many people like to have 5 or 10% of their investable assets in gold. Although it is not for everyone, we do encourage that. Some people like to have that security and they bury in their back yard or store it in their attic. Some people are looking for a way to invest that money – denominated in gold – and earn gold on their gold. We have found a company that is essentially a gold bank – paying interest in gold on gold deposits. This is a very low risk way to earn interest on gold rather than pay money in storage fees to have gold. We encourage people to look into this gold bank!
Regards and good investing!
Greyson Geiler
by Greyson Geiler | March 20, 2023
The last couple weeks of financial market news have been high anxiety considering the second and third largest bank failures in U.S. history. Silicon Valley Bank and Signature Bank have both been taken into receivership by the Federal Reserve. The good news is that, although the dust has not settled yet, it appears that actions by the Fed to thwart any domino effect into the banking system have been successful.
These banks were in a volatile section of the economy – tech startups. When the Fed kept its uber-loose policies in place WAY too long after the Covid debacle, huge waves of money poured into these banks. In simple terms those depositors are essentially unsecured lenders to the banks. These deposits are liabilities on the banks’ balances sheets. The Fed’s own regulations limited the assets that these banks could buy with the depositors’ money. Subsequently, many of them bought low-risk but high priced assets including treasury bonds. Now the credit cycle is tightening, tech startups aren’t doing as well and there are investment alternatives to traditional savings accounts as interest rates rise, so the tide has rolled back out. The banks were forced to sell some of the assets they had bought to earn money on the deposits, but they were at much lower prices than where they were purchased. This caused a solvency crisis and now SVB and SB are under the Fed’s control. This is devastating for stock and bond holders of these banks and quite concerning for the people/companies that have more than $250K (the FDIC guarantee limit) on deposit with these banks themselves.
Clearly these banks were not well managed. But we don’t subscribe to some of the extreme ideas that they were criminal or even reckless. The system the Fed has created lends to bad events. The failure of the SVB and SB banks don’t qualify as Black Swan Events because this is not a big surprise. The Federal reserve created $6 trillion after Covid with interest rates at zero and then they raised the rates to 5% in roughly a year – and we didn’t think anything bad would happen? The banks are playing within a tight regulatory matrix and the last three years of monetary policy have been WILDLY variant and that is the reckless part.
So, the million-dollar question is – what now? This is more of a systemic problem than a couple of rogue banks as we have described so is it time to brace for impact as the rest of our banking system seizes up? Obviously, no one can know for sure. But we are certain that if the Fed simply continued raising rates and did nothing else there would be more banks failing. But the Fed is now backstopping the system with loan guarantees for banks that need liquidity but don’t want to sell underpriced assets. To keep it simple, we already have different liquidity mechanisms in place between the repo and reverse repo markets (overnight) and the Fed’s “discount window” (90 days) but this is more complete. What the Fed is doing now is allowing banks to borrow 100% of the “par” value of their assets for one year. They have already put forward that after one year they will extend these loans – of course they will…
Will this new liquidity policy be sufficient to stave off similar bank-solvency problems across the country? Talks of Credit Suisse needing a “bailout” of sorts is quite concerning as that is a global entity that is wildly complex. The Swiss National Bank seems to be backstopping a deal for UBS to absorb CS. There is talk of MANY other banks that are scrambling to hold off the same fate as SVB and SB. There is also talk of some of the bigger banks like Chase coming in to support medium banks like First Republic – so everything is still in flux. As of this writing the major central banks appear to be reading from their crisis playbook by banding together and providing daily rather than weekly dollar swap lines to provide liquidity. The cavalry is already here but there really isn’t a dip to buy in stocks as assumptions ran last week that the Central Banks would save us.
If banking situation looks rickety and concerning, it’s not time to panic yet. The Fed isn’t done backstopping. One thing we didn’t mention above is that the Fed is guaranteeing depositors in SVB and SB past the $250K FDIC limit. Reportedly Roku had nearly half a billion on deposit so that is quite a bailout if it comes to pass. Although it looks now as if banks big and small all around the country will foot the bill through higher FDIC fees, it has calmed a lot of fears.
The Fed has initiated other actions to backstop the banking system as well. Over the last couple of decades, they have bought many assets across the financial world and amassed quite a balance sheet in the process. We have complained repeatedly about the amassing a $9 trillion behemoth of a portfolio largely because it wildly distorted financial markets. Conversely, we have been pleasantly surprised over the last year as the Fed has reduced its portfolio by some $700 billion. That came to a screeching halt in one week! Take a look…
In one week, the portfolio reduction progress of the last year was cut in half as the Fed purchased $300 billion in assets. This signifies that the Fed’s strategies that began a year ago to tighten monetary conditions has changed. The aggressive interest-rate raises, and the balance sheet reduction has finally broken something. The Fed is having to adjust on the fly and of course we are hoping they are not losing control. The U.S. has by far the most sophisticated capital markets in the world– and part of the reason for that has been consistency and rules that were set and voted rather than officials calling audibles at the line of scrimmage so-to-speak when market conditions change. Let’s hope we can hold that together.
At this point we do wonder how the financial world held together so well to this point considering the actions of the Fed? Have their policies been so recent that they haven’t really hit the basic economic conditions yet? Are technological innovation streamline parts of the economy supporting it even in tougher times? Are markets still sitting on some of the $6 trillion the Fed created after Covid, and the excess cash is only now getting exhausted? Are foreigners sending assets to our capital markets as conditions are worse in their home countries? Is there something else supporting our economy and markets that we haven’t thought of?
No one can answer all these questions, but we want to say that the situation has officially changed no matter why markets have held together. We are not predicting imminent doom, but we are throwing out a word of caution. The Federal reserve has a meeting coming up this week and sadly that is the most important event for our economy and markets. Will the Fed still raise rates at their meeting this week? That will seem strange if they do, because the banking system cannot stand on its own with these rate increases – is the Fed OK with that? We will be stimulating with asset purchases to tighten with higher interest rates… The Fed has truly become arsonist and fireman.
Time will tell – but if investors want to make any changes to their portfolios – the first should be to buy gold or more gold if you already have some. More on that next week…
Regards and good investing,
Greyson Geiler
by Greyson Geiler | March 7, 2023
We have repeatedly mentioned in our weekly posts that the resilience of the stock and bond markets over the last several months has actually been quite impressive. Interest rate hikes by the Federal Reserve have completely changed the financial landscape when comparing to the entire post 2008-09 world. Most financial writers did not predict that a return to the world where a 4% savings account was even possible – ever – but here we are. As for now, the world seems to be ignoring the fact that several hundred trillion dollars of debt (the world’s total debt is about 350% of world GDP) is going to have to be serviced and continually higher interest rates. As daunting as those numbers seem, for now the proverbial ship is still in the water for the world economy. The negativity from financial pundits is still relatively high – causing traders to short sell and the result is that days such as last Friday pop up when many of the short sellers have to cover their positions and buy back. That is the good news…
The bad news is that we are still amid a wild financial experiment that the world has never seen on this scale before. The world’s central banks poured more than $10 trillion of “liquidity” on to our financial system after the March 2020 panic. Then starting about a year ago, the same central banks pulled the rug so-to-speak out from under the financial markets and economy. They tightened credit markets with higher interest rates, soaking back up some of that “liquidity.” Some financial numbers have remained remarkably robust – such as the employment figures. Other indicators of the health of the economy look pretty bad including Purchasing Managers Indexes, capacity utilization numbers and of course, pretty much every residential real estate statistic…
But that may be some of the “noise” of financial markets or the economy. One of the really bad economic indicators when you are looking from 20,000 feet is the yield curve. Take a look at a picture of the last forty years of the “yield curve.” This is the 10-year U.S. treasury yield minus the two-year. When the yield curve inverts – at least in this timeframe – a recession ensues. Take a look…
As you can see the yield curve is inverted right now – and more so than it has been since all the way back in the early 1980s when Fed Chairmen Paul Volcker took interest rates toward the moon to fight off the raging inflation of the time. Understand that a 2-year interest rate that is higher than a 10-year interest rate is indicative of an investment marketplace that isn’t keen on taking long term risk. Historically, the inverted yield curve is a very accurate predictor of recessions. On the surface it would appear that the interest rate markets believe that there is quite a recession on the horizon. The yield curve is steep and getting steeper – and the Fed will be raising short term interest rates into this inversion later this month.
If looking at some of the already bad economic numbers and the historical predictor of an inversion of the yield curve shows such obvious picture of an economic drawdown, then how are things holding together? At least part of the answer to that question is our Trillion Dollar Secret. The world’s central bankers are advertising that they are tightening monetary conditions, yet according to Matt King, a strategist with Citigroup a net $1 trillion in new liquidity has been injected into the world’s financial markets. This net positive is largely due to the Bank of China IN THE LAST MONTH! The liquidity provided by the BOC was a major driving force of the world’s markets after the 2008-09 meltdown and they are trying to rerun that strategy. Some economic indicators in China are revitalizing a bit – which is likely the result of this stimulus. Some of this is obviously flowing through to the rest of the world’s economy which, thus far with rising interest rates is surprisingly resilient.
The stark reality is that our economies and financial markets are overly dependent on the actions of the world’s central banks. Obviously, that won’t be changing any time soon – but we know what we are up against and continue to read the tea leaves. So, stay tuned…
Regards and good investing,
Greyson Geiler
