gfp: The Central Banks are getting closer to panic mode. Wall Street wants an additional 0.5 to 0.75% rate cut at the next Fed Meeting. The Bank of Japan went on an ETF buying spree last Monday and now owns 80% of the ETF's in Japan. The Yield on 10 Year Treasuries dropped below 1%. In Germany their 30 Year and 10 Year Bonds fell to record lows. The percentage change in the VIX over the past 3 weeks is bigger than the increase we saw when Lehman Brothers collapsed. Oil Futures were down 10% on Friday. We might be seeing oil at $40 a barrel (or lower) this week. According to George Goncalves, a bond strategist, until last week we had NEVER seen a 50% drop in yield on 10 Year Treasuries over a 2 week period before. We dropped from 1.6% to 0.797% in 2 weeks. Three weeks ago Janet Yellen put out the idea that the Fed should expand the range of assets it could purchase....buying stocks. Boston Fed President Eric Rosengren also put out a statement that the Fed needs to do POMO and use the proceeds to buy stocks...that the Fed could no longer fight off a recession just lowering rates and buying bonds. During QE3 the Fed was pumping $80 - $100 Billion a Month. With overnight repos and term repos the Fed is currently pumping in $80 to $100 Billion PER WEEK. For the first time the Fed balance sheet is holding over $2.5 Trillion in US Treasuries. In previous QE efforts they bought more mortgage backed securities. This time around they are 100% monetizing the new debt being issued by the Treasury. And it will be to no avail. As we lower rates the Japanese and Europeans no longer have a reason to buy our government bonds because our yields are as low as theirs. They can buy their own low yielding bonds without the currency risk. So we have one buyer of our Bonds left....The Fed. There are only two ways this can go. The Fed can start raising interest rates and tank the stock market and put us into a severe recession...and live with the 5 years of pain. Or they can try to keep the economy from imploding temporarily by monetizing 100 % of our new debt and any debt rollovers AND create additional "money" and buy stocks directly or indirectly through proxies like Citadel. This but them a little time but will result in the collapse of the Dollar. That causes an even deeper and longer lasting recession, with a 50% loss in the lifestyle of the average citizens. The Fed will choose the latter. The only, AND I MEAN THE ONLY, current recourse we have is to concentrate our wealth into precious metals and real estate that is owned outright in lower tax jurisdictions. A $1 Million house in Darien Connecticut that you can't sell for $600 K and that carries a tax bite of $25-30K a year is not an asset. It is a liability. The "everything" Bubble is bursting. This isn't temporary. It found it's pin...the coronavirus. This was somewhat predictable even if the timing wasn't. The Russell 2000 was signaling that the markets made up of the major indexes were overextended. The Fed interventionism kept giving investors the false assurance that they could always keep the markets elevated. Thus the markets rose and rose against all fundamentals. Eventually we will see the S&P dip to 1400 (or lower), the DOW dip to 13,000 or lower and the Nasdaq dip to 4300 or lower. And this is going to be happening as the bulk of the baby boomers are retiring. How many of them are prepared for such losses? How many are positioned with sufficient hedges to preserve their portfolio's buying power? A scant few percent I would suspect. The Miners continue to be on sale. I can only tell you that it would be wise to increase your allocations to gold. What other industry produces a product (gold) that is going up in price while at the same time their costs to produce that product are dropping due to the collapse in energy costs? None that I can think of. The fundamental for gold and silver have never been better in my lifetime. And they are only going to get more compelling. I've studied the Macro on this crisis for a decade. At now while you can.
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