Money Flow Trading Method along with Risk Management

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Right now, the latest COMEX Issues and Stops reports expose COMEX physical gold supply problems. Though I have written about the various reasons why physical gold supply problems manifest many times in the past, this topic still remains one rarely discussed by financial journalists, and never discussed by the mass financial media.

For client accounts, when bullion banks stop more notices than issued, they, will lose physical inventory. For house accounts, the opposite is true. When bullion banks issue more notices than stops, then they will lose physical inventory as well. Normally, when bullion banks manufacture waterfall declines in paper gold and silver prices, as they did earlier this month, with the complicity of the CME’s largely unreported rampage in raising initial and maintenance margins on futures contracts many times within a 2-month period in the midst of a stock market crash, they load up on physical gold and silver for their house accounts while ensuring that their clients take almost zero delivery of physical gold and silver ounces. However, if they are unable to execute this clever strategy, this is when physical gold supply problems can manifest.


In fact, I have not seen a single news site in the entire world, except for my own, mention the relentless increase in initial and maintenance margins in gold and silver futures contracts (the 100-oz gold futures contract and the 5000-oz silver futures contract) for the past two months, in a desperate attempt to knock long positions out of the game and thereby prevent an increasing amount of physical delivery requests. Just recently, the CME raised margins yet again for 100-oz gold futures contracts to $9,185/$8,350 for initial/maintenance margins, representing a massive 86% increase in margins, and for 5000-oz silver futures contracts to $9.900/$9,000 for initial/maintenance margins, representing a gigantic 73% increase in margins, in just a couple months’ time. Normally, such relentless increases in initial/maintenance margins in gold futures markets is sufficient to prevent physical gold supply problems from afflicting futures markets, but the fact that even this reliable manipulation mechanism failed recently is a sign of additional tectonic earthquakes to come in the global financial system.


However, as you can see for the data I have compiled for the behavior of issues and stops for client and house accounts for bullion banks in gold and silver from December 2019 to March 2020, this pattern of normal behavior, in which bullion banks take advantage of their own artificially manufactured paper gold and silver price plunges to load up on physical metals at the expense of their clients, has strongly reversed during this four-month time span. I have only included data for the major gold (100-oz) and silver (5000-oz) futures contracts below and not for the mini gold (10-oz) and mini silver (1000-oz) silver futures contracts.

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Furthermore, I only separated out the bullion banks by name that had several hundred to a few thousand contracts stopped or issued, and compiled all other data under the category of “all others”. For those of you that don’t understand the terminology “stopped” and “issued”, the categories refer to the number of delivery notices that were “issued” (short positions issuing notification that underlying gold/silver would be delivered) and “stopped” (long positions receiving a delivery notice). Therefore, when delivery notices are “issued” in house accounts, the issuing bank is on the hook for delivering the physical ounces associated with the underlying contracts. On the contrary, when notices are “stopped”, then the stopping bank would receive notification of the future delivery of the physical ounces associated with the underlying contracts. The same holds true for client accounts. Thus, all bullion banks desire more stopped than issued notices for their house accounts, and desire more issued versus stopped notices for their client accounts. This way they accumulate more physical inventory during artificially engineered paper price crashes.

As you can see, the massive engineered drop in paper silver prices versus the massively higher physical silver prices for the past month backfired on the bullion banks, as it led to a frenzy of clients asking for physical delivery, whereas in the past, bankers had been able to chase client long positions out of the market without ever being on the hook for physical delivery. Thus the amount of contracts stopped versus issued for clients was nearly break even for silver futures contracts, a pattern I have not witnessed in a long time during a banker raid on paper silver prices. And in regard to house accounts, under past similar circumstances, I had always observed JP Morgan bankers taking a tremendous amount of physical silver delivery during engineered collapses in paper silver prices. However, during the last four months, this situation did not materialize, perhaps due to the stress on physical stores of silver created by so many clients asking for physical delivery. As you can see in the data I complied above, this time around, JP Morgan bankers were nearly absent in taking physical silver delivery for their house account. In fact, for the bullion bank house accounts, the amount of stopped versus issued contracts, net, was only 74 contracts, or a mere 395,000 AgOzs for their House accounts. As a basis of comparison, during similarly engineered collapses in paper silver prices in the past, JP Morgan alone was able to accumulate and take delivery of many millions of physical silver ounces.


In regard to real physical gold delivery, the situation was even worse for bullion bankers than their situation with real physical silver delivery, which likely has given rise to physical gold supply problems at the current time. In their client accounts, physical delivery requests exploded, with the net (stopped minus issued) totaling 8,095 contracts representing 800,950 AgOzs of real physical gold requested for delivery. In their house accounts, the bullion banks were unable to yield a positive net situation either, with issued contracts exceeding stopped contracts by 6,107 contracts, representing 610,700 AgOzs. Thus, when adding these two figures together, the bullion banks are on the hook for delivering more than 1.4M AgOzs.


This unexpected demand on bullion bank physical gold reserves has undoubtedly led to a disruption of physical gold delivery associated with the gold futures markets, though various COMEX spokespeople have claimed there is no shortage of physical gold whatsoever, and that the disruption of delivery is simply due to a disruption in the supply chain caused by the coronavirus pandemic, i.e., when in doubt, blame the coronavirus pandemic for all manifested stresses revealed in the global financial system. Earlier, here, on 24 February, I speculated, well before US stock markets started to crash, that the coronavirus pandemic would be scapegoated for the market crash, and I was 100% right. Is it possible that the coronavirus pandemic is now being scapegoated for shortages of physical gold as well?


Oddly, a gold analyst, Ole Hanson stated in response to the shortages of gold physical supply in the futures markets: “There is plenty of gold in the market, but it’s not in the right places. Nobody can deliver the gold because we are forced to stay home.” The explicit function of COMEX warehouses is to store the physical gold that backs gold delivery associated with gold futures contracts. Consequently, why is the physical gold “not in the right places” and in these warehouses, as if it is stored where it is supposed to be stored, and the data is accurate (1.76M registered AuOzs and an additional 6.98M eligible AuOzs in COMEX warehouses as of 26 March 2020), there should be no physical gold shortages to meet physical demand right now? Did Mr. Hanson, in his statement that gold is “not in the right places” unwittingly reveal that the reported COMEX warehouse data is fraudulent?


Secondly, some would suggest that ever since the COMEX mandate that paper gold could be used to close out physical delivery requests through EFP (Exchange For Physical) transactions by Exchange Rule 104.36 enacted on February 18, 2005, which allowed for the substitution of gold ETFs for physical gold, that no physical shortage of gold could ever result. Since paper was allowed to replace physical, could not bullion banks just literally “paper over” any physical supply deficit? And if the answer to this question is yes, then why is the COMEX experiencing physical shortages of gold right now? Well, as I explained in an article that I published on my news site in June 2011, in which I explained how EFP transactions operate (which you can read here), “the Related Position [Physical] must have a high degree of price correlation to the underlying of the Futures transaction so that the Futures transaction would serve as an appropriate hedge for the Related Position [Physical].” Consequently, since there has been a massive price decoupling between physical and paper gold prices, perhaps this price decoupling has enabled the underlying holder of longs in gold that asked for physical delivery to reject any EFP transaction, since there is no longer a “high degree of price correlation” between paper and physical gold, and to insist on physical gold delivery with no substitution for this request. And this rejection of EFPs and EFS (exchange for swaps) as acceptable behavior is perhaps what is causing the physical gold supply problems in the futures markets right now.


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The LaRouche Gold Proposal: Averting Economic Depression
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Stuart Lewis
Lyndon LaRouche in a San Francisco press conference in 1984.

Editor’s Preface: Today, when the world stands on the verge of a plunge into financial crisis, Lyndon LaRouche’s Four Laws and his proposed New Bretton Woods System point to the only direction for economic recovery. Because a background in LaRouche’s economic thinking is required to comprehensively understand and implement such measures, we reprint below a proposal of his from 1981, to help start that thinking process among our readers.


Editor’s note: This is a reprint from EIR, Vol. 8, No. 40, Oct. 13, 1981, pages 18-21.

The National Democratic Policy Committee under the direction of Advisory Board Chairman Lyndon LaRouche, issued the following urgent resolution on gold policy on Sept. 22, 1981.

Even at this late hour, the re-introduction of gold into the world monetary system can prevent a major financial crisis and economic depression. The Federal Reserve’s incompetent, destructive monetary policy has already pushed the U.S. economy into the second stage of a depression that began immediately after Chairman Volcker’s “Saturday Night Massacre” of Oct. 4, 1979. Between now and year-end, unless appropriate countermeasures are adopted, the U.S. financial system will endure a liquidity crisis on a scale worse than that of 1929-33.

This is a war for the survival of the United States, not—as the Fed has argued—payment for the past sins of largesse committed by previous Administrations. America’s banking system is already under the dictatorial control of the “offshore” money markets, which the Fed has transformed into the only source of liquidity available to American borrowers. Remonetization of gold is the step required to win the war on behalf of American productivity and living standards.

Step one is to remove the gold issue from monetarist incantation over “market perceptions,” “inflationary expectations,” and “monetary control.” Those disciplines which the American financial system requires may be reduced practicably to a single overriding constraint: we must restrict the expansion of credit to those uses which will improve productivity, output, and exports. That is, we must do the opposite of the Federal Reserve’s supposedly “restrictive” program, which has added $25 billion per year to federal debt-service costs and deficit-financing needs, and a debt-service burden to the private sector that forced a 35 percent annual rate of credit expansion during the first eight months of this year.

The proper use of gold is to build such a constraint into our financial system, through our financial relations with other nations. The specific measures required to bring about this arrangement are straightforward and clearly understandable to a majority of the American population, once we agree that monetary controls exist to address the real problem, the state of the economy’s productive base.

Below, we outline the requirements of a return to gold-based monetary stability, and explain why the competing monetarist versions of the gold standard have no hope of success.

1) Remonetize American Treasury gold reserves at $500 per ounce or the market price, whichever is higher.
In current capital-goods and labor costs, $500 per ounce is the marginal price of gold, i.e., the price at which new gold mines may be brought into production on sufficient scale to assure an adequate supply of new monetary gold.

2) Establish the value of the U.S. dollar as a fixed weight of gold, e.g., one-five hundredth Troy ounce of gold, and agree to exchange gold in payment for current account deficits or surpluses with nations who follow a similar monetary policy.
By agreeing to exchange gold with nations to balance our current account payments (merchandise trade plus shipping, insurance, tourism, and similar services), we are making a commitment to pay our own way in international trade.

However, we will do this only with nations that adopt the same program. In practice, there is little question that most of the nations that now belong to the European Monetary System, a gold-reserve and fixed-currency agreement among the eight leading European countries, as well as Japan, would join such an agreement enthusiastically.

By making the dollar as good as gold on international markets, this action would immediately bring down interest rates, by eliminating hundreds of billions of dollars in currency speculation and hedging in foreign markets, which consumes the biggest portion of credit generated worldwide.

3) Issue a new series of U.S. Notes against our gold reserve, through participations in productive-investment credits in the banking system.
To make good our promise to pay gold to cover our international accounts with our trading partners, we must simultaneously ensure that the credit we issue at home expands productivity and output. At present the Federal Reserve “prints money” by adding funds to the New York money market, i.e., to the large international banks. Under this system the American banking system opened up $49 billion in credit lines for inflationary, speculative corporate takeovers, but lent on net virtually nothing to basic industry.

The Federal Reserve’s method of creating credit is inflationary. We propose, instead, to return to the monetary policy of the Lincoln administration—U .S. Notes issued for productive purposes, and backed by America’s ability to back the dollar with gold.

Instead of an independent agency with unlimited discretionary powers to create money, the Federal Reserve should be reduced to a mere agent of the U.S. Treasury, by amendment to the Federal Reserve Act. All discussion at the Federal Reserve or otherwise about “monetary targets” and “desired rates of money growth” at the Federal Reserve or elsewhere is pure bunk. We can create as much credit as we want, provided that Americans can absorb it into new investments in industry, agriculture, mining, construction, and transportation, i.e., activities that add to the nation’s tangible wealth.

The Treasury will lend out U.S. Notes at 6 percent interest for investment or working-capital purposes in manufacturing, agriculture, mining, construction, and transportation, according to this procedure: any private banker may apply to the local Federal Reserve banks, acting as the Treasury’s agents, for a U.S. Notes participation in a credit for these designated areas. Only when a private corporation will initiate such investment, and a private bank will take at least half the credit risk, will the Treasury issue U.S. Notes.

There is no great complexity or threat of bureaucracy in this program. Presently, local bankers have to turn to the mirror-world of the money centers, e.g., overnight repurchase agreements, federal funds, correspondent loans, and so forth to raise funds, and turn their operations upside-down with every new patch of regulation or “deregulation” introduced by the Fed or Congress. We will reduce bankers’ sources of funds to two: deposits generated by business activity in their localities, or direct infusions of low-interest loans of U.S. Notes where required.

Although monetarists will throw up their hands at a distinction between “productive” and “nonproductive” credit, despite the insistence upon such a distinction in all economics up through and including Adam Smith and David Ricardo, every local banker will understand precisely what is involved. Any intelligent banker knows that certain types of business put “real tax-base” into a community, e.g., manufacturing, agriculture, and mining. He knows that a community which invests exclusively in fast food restaurants, high-rise office towers, and the other staples of the late 1970s U.S. economy will go broke.

Gold backing for this credit issue constitutes a basic discipline on our actions. America’s slippage into trade deficit during the 1970s is a consistent and accurate measure of our declining productivity, brought on largely by the malfeasance of the Federal Reserve. Correction of these policies and restoration of our productivity growth will also revive our export potential; otherwise our gold will flow out to foreign nations.

4) Prevent inflationary credit from undermining the U.S. Notes program.
The principal source of inflationary credit in the U.S. economy is not the “printing-press” money of the Federal Reserve but the accumulated “book-money” of the Eurodollar market. With no reserve requirement, the foreign branches of the Wall Street banks, along with the British and Canadian international banks, create unlimited book-credits among each other. This $1.5 trillion mass of fictitious paper is the world’s principal source of inflation. Inflows of Eurodollar book-credit account for virtually all the speculative credit lines for corporate takeovers in the U.S.

Monetary inflation can be eliminated overnight by two simple, long-overdue measures:
1) The Federal Reserve shall cease to be a net issuer of credit, and act only as the Treasury’s transfer agent for U.S. Notes. U.S. Notes will gradually replace the unconstitutional issue of Federal Reserve notes as circulating currency of the United States of America.
2) The Treasury shall institute a policy of transparency of sources of credit to prevent the influx of inflationary, Eurodollar book-credits. One rule will suffice: as a matter of simple banking safety, no substandard paper will be permitted to circulate in the American banking system. A Eurodollar loan to an American company is a right to draw on a Eurodollar account unbacked by any reserves, contrary to American banking law. No such fictitious money may be lent into the United States, period.
Such action will immediately break the stranglehold over world credit now exercised by the Anglo-Canadian banking cartel, the main beneficiary of the Federal Reserve’s unconstitutional policy of money issue.


5) Except for participations in productive credits, the Treasury will create U.S. Notes on only one other condition, to buy gold from U.S. citizens presented to the Treasury.

The Treasury will buy such gold at the price fixed at the outset of such a program.

6) The United States and other nations participating in this gold-reserve system will trade gold among each other at a fixed price, regardless of the behavior of the free market price. No U.S. monetary policy shall be subject to the whims of gold speculators.

Since the basis for determining the fixed price of gold is the required production-price of new gold supplies, this price fixing will endure-provided that credit issue contributes to anti-inflationary gains in productivity. Any attempt by speculators to push the price above the level at which central banks exchange gold among each other might, temporarily, produce a “two-tier” gold price of the type seen between 1968 and 1971. However, we have no doubt who would come out the victor in this sort of economic war.

The flaw in the various monetarist proposals for gold restoration (e.g., Laffer, Lehrman, Wanniski, Ron Paul) is elementary. The United States must conduct a form of economic warfare against an international financial cartel whose principal objective is to have the carcass of the U.S. economy to pick over. Their ally is the Federal Reserve, and their chief operator is Federal Reserve Chairman Paul Volcker. Without the two fundamental safeguards described above, i.e., transparency of sources of credit, and priority for productive credits, the United States monetary authorities will have little say in the management of the monetary system relative to the London and Cayman Islands offshore centers. Either, as the Federal Reserve proposes, the monetary authorities will bring about a deflationary collapse of the credit system by tightening credit to prevent gold outflow, or the U.S. will simply lose its gold stock to speculators.

By making the dollar “as good as gold” through the above plan, the United States can return to international economic pre-eminence.
Questions About the LaRouche Proposal

Below are replies, provided by Richard Freeman for the October 13, 1981 EIR, to the then most frequently asked question about the LaRouche gold proposal.

Q: Which specific agency, authority, or special committee shall make the decisions as to which are the productive and which are speculative investments? In other words, who decides where the gold-based notes go?
A: The specific agency is the Federal Reserve Board of Governors, based in Washington, D.C. But the Federal Reserve will be changed, by an amendment of the Fed Act—passed by Congress—into the status of a mere agency within the U.S. Treasury. Therefore, the Treasury Department will make the final decision.

Q: What volume of gold-based notes is foreseen?
A: The LaRouche proposal proposes to freeze the level of U.S. Federal Reserve notes in circulation—currently $125 billion—at its present level. It will then increase the money supply solely through the mechanism of Federal Reserve issuance of gold-based currency notes for loans for productive purposes. The Fed will cease creating new currency through any other procedure, including monetizing the Treasury debt.

Q: What happens to credit issuance before your new system has taken effect?
A: Nothing. Unlike the proposal of Art Laffer, the LaRouche proposal does not plan to have a waiting period of a year or more, to determine the “free-market” price of gold. The idea of a “free-market” price of gold for a government gold system is ridiculous. Governments, by treaty agreement, will set the price of gold, and therefore, the system can go into effect immediately. One day there will be one system of credit issuance, the next day the LaRouche system.

Q: Explain in detail the international exchange of accounts. How would bilateral trade work?
A: The United States will settle its accounts with its bilateral trading partners in gold. This means whichever of the two countries, the U.S. or its trading partner, runs a current-account deficit at the end of the year (that is, a deficit on trade, insurance, freight, tourism and other invisibles) will remit the amount of that deficit in gold to the country it is in deficit to. By the end of the year, all current-account imbalances will be squared away.

Q: Is LaRouche proposing the creation of a new international financial institution based on the use of gold?
A: Yes. LaRouche has long been of the view that the world financial system is troubled by the uncontrolled Eurodollar market, now totaling over $1 trillion, and by the overhang of $500 billion of non-oil-producing third world indebtedness, the bulk of which is nonperforming. Therefore he has proposed an international gold-based fixed exchange monetary system, in which currencies are set in parity bands relative to one another; and the creation of a new international credit-issuing banking institution based on the use of gold.

The basic principle of the new bank is that it would reorganize world debt, and issue gold-denominated new currency notes as the terms of the new loans. The interest rate on the loans would be 2 to 4 percent.

First, the bank will acquire its currency at the time that the charter creating the new banking institution is adopted. Deposits will consist of gold-reserve currency notes of sovereign nations deposited at the bank, for which the sovereign nations, such as the United States, will receive stock subscription in the new bank. Against this pool of notes, the new bank has the collateral to issue its own gold-denominated currency notes.

New loans by the new bank will be made to any nation or economic entity that has signed the treaty creating the new bank. The loans are made by the new bank essentially as discounts on loan agreements between participating members of the new bank.

An importing nation, say Brazil, would contract a loan with Germany, for example, or with a German exporting agency and that agency’s bank. Once the loan is determined to be for productive purposes, Brazil would submit that loan to the new bank, asking that bank to discount either part or all of the loan. This means that the new bank, after examining the loan itself, would make available to the German exporting agency’s bank either all or some of the value of the loan in gold-denominated currency notes at 2 to 4 percent interest rate. This money is then lent by the Germany exporting agency’s bank to Brazil.


Q: Which nations would participate immediately in this new gold-based monetary system, and why? What about the Third World?
A: The leading eight European nations of the gold-based European Monetary System, most importantly Germany, as well as Japan, which bought 68 tons of gold this July alone, would be more than glad to join the United States immediately in a world gold-based system. These nations and the United States combined have large enough gold reserves to make the system work and preserve its integrity.
The Third World nations would be encouraged to join. If they were low on gold reserves, they would pledge future productive capacity for goods production as security for their loans. A redistribution through open-market sales of gold reserves could be easily conducted to provide Third World nations with ample gold to conduct their current-account settlements.


Q: How does the LaRouche proposal help to dry out the enormous liquidity being wasted by corporate mergers, money-market funds, and the Eurodollar market?
A: The Eurodollar market is like an international “crap game” in that it sloshes around the world, controlled by no national government and swelling the money supply of key nations, especially America’s. The Eurodollar market creates a mass of fictitious paper values; it is the major cause for double-digit U.S. inflation. Corporate mergers, which totaled $34 billion in the first six months of 1981, are nonproductive, but as you suggest suck up a tremendous amount of liquidity.
The LaRouche proposal begins with the distinction of productive versus nonproductive and inflationary forms of economic activity. The Fed will reward loans to productive industry, by agreeing, under the LaRouche proposal, to take participation in any private commercial-bank loan that the private bank makes to manufacturing, mining, construction, transportation, or agricultural entities. The Fed will participate by agreeing to discount up to 50 percent of any private bank loan it deems worthy. The private bank must risk its assets for the other 50 percent of that loan. The Fed will issue to the private bank up to 50 percent of the value of any productive loan in gold-based U.S. currency notes at interest rates of 2 to 4 percent.

On the other hand the Fed will refuse to make credit available for nonproductive, speculative, wasteful or overhead loans except at the prevailing free-market rate, which is now 19.5 percent. Under these conditions, banks will choose to make productive loans. The spread on the difference between what a bank can earn when it pays 2 to 4 percent for its money and when it pays 19 percent, is enormous, even if the productive investments have lower profit margins.
A bank knows that if it relends the money it got from the Fed at 4 percent for 6 percent interest, it will get its earnings back, because the investment will produce a real-wealth profit. Individual investors, having to pay correspondingly higher interest rates if they borrow from a bank for non-productive purposes, will also choose to invest in productive investments.

And the Euromarkets will dry up as soon as the new treaty agreement is signed. Under this agreement, no bank will be permitted to lend dollars, unless the loan conforms to the terms of the treaty, and that includes meeting reserve requirements. Most Eurodollar banking thrives on its reserve-free status.
The speculative outlets that are the chief lending objects for the Eurodollar market will be dried up. Very soon, all international lending will take place in gold-denominated currency notes—these will be the only type that governments and private institutions and individuals will want to hold. All non-gold-secured dollars that are not earmarked for productive loans will not be discounted internationally by the new lending bank, and will not be trusted by private investors.

Q: Why doesn’t the issuance of new LaRouche gold-based currency notes add to the money supply?
A: It will add to the money supply; however, this will be a noninflationary increment. Each new increment in credit, C, will be lent to industry or agriculture to increase its absolute surplus or overall profit. Insofar as overall profit grows faster than C, then goods production is exceeding money supply, and that is noninflationary. Moreover, since the new productive loans generate will go primarily to industries employing high technology, the cost of production will decline, and that is in fact counterinflationary.

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https://www.dollarcollapse.com/gold-unobtanium/

Gold Is Now “Unobtanium”


BY JOHN RUBINO ◆ MARCH 28, 2020

The Wall Street Journal just published the kind of article gold bugs dream of seeing in the mainstream press. Here’s an excerpt:

Coronavirus Sparks a Global Gold Rush

Epic shortage spooks doomsday preppers and bankers alike; ‘Unaffordium and unobtanium.’


It’s an honest-to-God doomsday scenario and the ultimate doomsday-prepper market is a mess.

As the coronavirus pandemic takes hold, investors and bankers are encountering severe shortages of gold bars and coins. Dealers are sold out or closed for the duration. Credit Suisse Group AG, which has minted its own bars since 1856, told clients this week not to bother asking. In London, bankers are chartering private jets and trying to finagle military cargo planes to get their bullion to New York exchanges.

It’s getting so bad that Wall Street bankers are asking Canada for help. The Royal Canadian Mint has been swamped with requests to ramp up production of gold bars that could be taken down to New York.

The price of gold futures rose about 9% to roughly $1,620 a troy ounce this week and neared a seven-year high. Only on a handful of occasions since 2000 have gold prices risen more in a single week, including immediately after Lehman Brothers filed for bankruptcy in September 2008.

“When people think they can’t get something, they want it even more,” says George Gero, 83, who’s been trading gold for more than 50 years, now at RBC Wealth Management in New York. “Look at toilet paper.”

Worth its weight in Purell
Gold has been prized for thousands of years and today goes into items ranging from jewelry to dental crowns to electronics. For decades, the value of paper money was pinned to gold; tons of it sat in Fort Knox to reassure Americans their dollars were worth something. Today they just have to trust. President Nixon unpegged the dollar from gold in 1971.

Gold is popular with survivalists and conspiracy theorists but it is also a sensible addition to investment portfolios because its price tends to be relatively stable. It is especially in-demand during economic crises as a shield against inflation. When the Federal Reserve floods the economy with cash, like it is doing now, dollars can get less valuable.

“Gold is the one money that can’t be printed,” said Roy Sebag, CEO of Goldmoney Inc., which has one of the world’s largest private stashes, worth about $2 billion.
The disruptions this week pushed the gold futures price, on the New York exchange, as much as $70 an ounce above the price of physical gold in London. Typically, the two trade within a few dollars of each other.

That gulf sparked a high-stakes game of chicken in the New York futures market this week. Sharp-eyed traders started snapping up physical delivery contracts, figuring banks would have trouble finding enough gold to make good and they would be able to squeeze them for cash. That set off a scramble by banks.

Goldmoney’s Mr. Sebag said bankers were offering him $100 or more per ounce over the London price to get their hands on some of his New York gold.

What’s more, there is limited new supply. Mines in countries such as Peru and South Africa are shut down because of the coronavirus. Once-busy Swiss refineries that turn raw metal into gold bars closed earlier this week as the country’s coronavirus cases neared 10,000.

David Smith owns a wristwatch business in northern England and said Tuesday his bullion dealers weren’t taking any more orders. He has been scouring social media for individuals who might sell to him.

“You can’t really get physical gold and silver anywhere at the moment,” he said.

He began investing personally in metals a few years ago after watching videos from Mike Maloney, creator of the website goldsilver.com. Like other online dealers, the site currently has a notice saying products are back-ordered up to 12 weeks and that there is a $1,000 delivery order minimum.

The title of Mr. Maloney’s latest podcast: “Unaffordium and unobtanium.” (The latter has popped up in the plots of science fiction movies).

To sum up: A pillar of the mainstream financial media just acknowledged gold’s multi-millennia role as a store of value, quoted someone calling it “money,” and noted that since the world left the gold standard, we “just have to trust” governments to maintain their currencies.

The article quotes the CEO of GoldMoney and GoldSilver’s Mike Maloney, and calls gold “a sensible addition to investment portfolios.”

It mentions the divergence between paper and physical prices and attributes it to the same kind of buying panic that has emptied stores of toilet paper. “When people think they can’t get something, they want it even more.”

Now pretend you’re an editor at a city newspaper or regional magazine and you’ve just finished reading the above article. What do you do? You immediately call in one of your finance reporters and tell them to look into this “gold shortage” thing.

So prepare for millions of anxious people to get their first exposure to the gold story, just as the supply dries up.

https://www.zerohedge.com/markets/bo...ops+to+zero%29

Authored by MN Gordon via EconomicPrism.com,

“We’re not letting Boeing go out of business.”
– Donald Trump, President USA

Something Stinks
On Tuesday, in anticipation of several trillion dollars of Congressional pork, the Dow Jones Industrial Average (DJIA) rallied 11.37 percent. This marked its best day since 1933. Some Dow 30 stocks did much better.

For example, Chevron was the top performer; closing up 22.74 percent. American Express, which increased 21.88 percent, was a close second. But do you know what company came in third?

None other than the posterchild for corporate financialization and cronyism: Boeing. The company closed up 20.89 percent.

By all honest metrics, Boeing is circling the toilet bowl. On Tuesday, for example, Fitch cut Boeing’s credit rating to BBB. And according to Bill Ackman, head of Pershing Square Capital Management, “Boeing is on the brink [and] will not survive without a government bailout.”

The scuttlebutt on Tuesday was that the government’s imminent coronavirus bailout package would earmark $60 billion to keep Boeing solvent. One would think that in its moment of striking failure the company would practice a little humility. But, apparently, humility’s not part of its coddled culture.

In fact, in an interview on Tuesday with Fox Business, CEO Dave Calhoun clarified that Boeing would command the terms of its bailout. Specifically, the U.S. government, as dictated by Calhoun would get no stake in the company:
“I don’t have a need for an equity stake. I want them [the U.S. government] to support the credit markets, provide liquidity. Allow us to borrow against our future.”
Yet investors are committed to rewarding Calhoun’s hubris. On Wednesday, Boeing was the top Dow 30 stock; shares ran up 24.32 percent. That was more than double the second highest increase of a Dow 30 stock for the day, United Technologies, which was up 10.87 percent. Then, on Thursday, Boeing led the pack again, closing the day up 13.75 percent.


Make of it what you well. Something stinks. Naturally, the seeds of Boeings rancid, rotten fruits were planted several decades ago…

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Guided By Bean Counters
William Boeing, the man responsible for the rise of Boeing during the first half of the 20th century, died in 1956. We don’t know much about the man. We’ve never read his biography. But we suspect the culture that William Boeing instilled in his company faded from its corporate principles by the turn of the new millennium.

You see, William Boeing’s cohorts likely continued the company in the William Boeing way after his death. These associates likely passed on the culture of exacting engineering to the next generation of Boeing management. However, once management was three generations removed, they had little connection to what had made the company great.

No current Boeing employee – management, engineer, or mailroom clerk – has ever met William Boeing. What’s more, it’s highly unlikely that any current Boeing employee has ever met someone who has met William Boeing. By all practical matters, the culture of William Boeing no longer exists at the Boeing Company.
David Calhoun, the current CEO, the guy that doesn’t have a need for an equity stake, isn’t even an aviation engineer. He’s an accountant. He has no clue how airplanes fly or how jet engines work. But he does possess a special skill that’s inherent with his technical discipline…

One of the chief skills of accountants who are granted the controls of corporate management is the unmatched aptitude for eroding industrial capital in favor of shareholders. When all business decisions are guided by bean counters a company’s reason to exist ceases.

For Boeing, the con job can be traced back to its acquisition of McDonnell Douglas in 1997. Here we’ll turn to Matt Stoller, and his article What Happened at Boeing?, for edification:
“Unlike Boeing, McDonnell Douglas was run by financiers rather than engineers. And though Boeing was the buyer, McDonnell Douglas executives somehow took power in what analysts started calling a ‘reverse takeover.’ The joke in Seattle was, ‘McDonnell Douglas bought Boeing with Boeing’s money.’


“The merger sparked a war between the engineers and the bean-counters; as one analyst put it, ‘Some of the board of directors would rather have spent money on a walk-in humidor for shareholders than on a new plane.”’

Boeing’s Bean Counter Culture and Mass Financialization

The demise of Boeing culminated in late-2018 and early-2019 when the company’s revamped 737, the 737 MAX, suffered two systems malfunction induced crashes. This prompted aviation authorities around the world to ground the 737 MAX. More from Stoller:

“The testing in 2012, with air flow approaching the speed of sound, allowed engineers to analyze how the airplane’s aerodynamics would handle a range of extreme maneuvers. When the data came back, according to an engineer involved in the testing, it was clear there were serious issues to address.

“The old Boeing would have redesigned the plane’s control surfaces to fix the faulty aerodynamics, but the McDonnell Douglas-influenced Boeing now tried to patch the problem with software. And it was bad software, some of written by outsourced engineers in India. The Federal Aviation Administration, having outsourced much of its own regulatory capacity to Boeing, didn’t know what was going on, and Boeing didn’t tell airlines and pilots about the new and crucial safety procedures.”

All the while, as the 737 MAX was being patched up with cheap software and rolled out the world over, Boeing management was engaged in the mass financialization of its business. The kind that enriches management and shareholders to the demise of the real business.

Aerospace analyst Dhierin Bechai took a look at Boeing’s share buybacks and dividend payments in relation to cash flow between 2014 and 2019 and discovered several fun facts:
“Boeing spent roughly $60B ($59,994 million to be exact) in buybacks ($40.6B) and dividends ($19.4B) in the past years while it generated roughly $55B in cash flows. Boeing returns all of its cash flow from operations to shareholders. The $5B excess is caused by 2019, the year in which Boeing spent money on dividends and buybacks while operating cash flow fell. Excluding 2019, we found that Boeing returns 92 percent of its operating cash flow and 113 percent of its free cash flow to shareholders.”


No doubt, the bean counters running Boeing were personally rewarded for this mass financialization. Coincidentally, or not, the $60 billion returned to shareholders is the exact amount Boeing requested in federal support for the aerospace industry.


From what we gather, this week’s $2 trillion federal bailout includes a $17 billion federal loan program for businesses deemed “critical to maintaining national security.” The provision does not mention Boeing by name, but is largely for the company’s benefit.


They’ll also likely get their grubby hands on a piece of the $454 billion the Treasury Department intends to have the Fed lever up to $4 trillion in loans for corporate America.


Just another example of financialization, cronyism, and everything that’s wrong with everything. We’re doomed!

https://www.oftwominds.com/blogmar20...ality3-20.html


The New (Forced) Frugality

March 28, 2020


There are only two ways to survive a decline in income and net worth: slash expenses or default on debt.

In post-World War II America, the cultural zeitgeist viewed frugality as a choice: permanent economic growth and federal anti-poverty programs steadily reduced the number of people in deep economic hardship (i.e. forced frugality) and raised the living standards of those in hardship to the point that the majority of households could choose to be frugal or live large by borrowing money to enable additional spending. Either way, rising income and net worth would raise all ships, frugal and free-spending alike.


For everyone above the bottom 20%, frugality was viewed as a sliding scale of choice: if you couldn't increase your income fast enough, then borrow whatever money you needed. If you chose to be frugal, in moderation (i.e. clipping coupons and shopping for the cheapest airline seats, etc.) this was viewed as admirable fiscal prudence; if pushed beyond moderation then it was dismissed as counter to the American spirit of everlasting expansion: tightwad is not an endearment.


Thus none of us immoderately frugal folks ever fit in. Our frugality raised eyebrows and drew derogatory exhortations from indebted free-spenders to "get out there and live a little," i.e. blow hard-earned money on aspirational gewgaws or status-enhancing fripperies, including the oh-so-precious "experiences" that have now replaced gauche physical markers of status-climbing.


We are now entering a new era of forced frugality in which incomes and net worth stagnate or decline while the cost of living rises and borrowing is no longer frictionless.


To say that these changes will shock the system is putting it mildly. Here's the key dynamic in forced frugality: income can drop precipitously without any ratcheting to slow the decline, but costs only ratchet higher, or decline by nearly imperceptible degrees; that is, costs are "sticky" and refuse to slide down as easily as income.


The second key dynamic in forced frugality is the tightening of lending and the rising cost of borrowed money. When lenders could assume that almost every household's income would increase as a byproduct of ceaseless economic expansion, and assets such as stocks, bonds and houses would always increase in value (any spots of bother are temporary), then the odds of a nasty default (in which the borrower stiffs the lender--no monthly payments to you, Bucko)--were low.
But once incomes and asset valuations are more likely to fall than rise, the door to lending slams shut. Why would lenders extend loans to households and enterprises that are practically guaranteed to default? Any lender that self-destructive would soon be stripped of their capital and solvency.


The general assumption is that since central banks are buying bonds, interest rates for borrowers can only go down. This assumption is misguided. The base assumption of all lenders is that a very thin layer of borrowers will default. Once this layer thickens, it makes no sense to lend to everyone who can fog a mirror.


Unwary lenders are about to learn a very painful lesson about the creditworthiness of supposedly solvent middle-class households: since income isn't "sticky," households that had high credit scores for years can quite suddenly default on their loans once their incomes plummet.
As for the borrower's assets, those too can plummet in value, leaving the lender with zero collateral or an asset for which there is no buyer, regardless of the appraised value.


The income/assets slope is greased while the cost slope is on a resistant ratchet. Income can slide down effortlessly while costs stubbornly refuse to fall.


The net result of this dynamic is forced frugality. For the first time in decades, households and enterprises cannot count on a resumption of growth in a few months and higher incomes and asset valuations.


To the dismay of living-large-on-debt households and enterprises, the only way to get more than you have now will be to save, save, save cash. Earning more from one's labor will be difficult, as will reaping easy speculative gains from simply owning assets.

The debt-free frugal may be forgiven for indulging in a bit of schadenfreude toward those who scorned frugality in favor of living large in the moment. Now who's living large? Not the extremely frugal, because squandering money gives them no pleasure, and they prefer the anti-status "status" of old cars and trucks, tools that have lasted decades and assets that look like everyone else's except they're debt-free.

As for income--those who control and invest their own capital and labor, the class I've long called mobile creatives--will have far more opportunities than those chained to the monoculture plantations of corporate cartels and government agencies squeezed by collapsing tax revenues.

A great many people who reckoned moderate frugality was more than enough will discover it no longer suffices. A great many other people who reckoned they were rich enough to spurn frugality will discover their income no longer covers their expenses and so expenses will have to be slashed and burned to the ground.

And many frugal people who did the best they could with limited income will find that even extreme frugality can't fix a decline in income.

An economy-wide reckoning of what's essential is just starting. Netflix subscription? Gym membership? Fast food takeout a couple times a week? No, no and no. A thousand no's as there are only two ways to survive a decline in income and net worth: slash expenses or default on debt. Both are toxic to "growth" in spending and debt.

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My COVID-19 Pandemic Posts


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https://marker.medium.com/tom-colicc...h-6c08cdc8cc05

Tom Colicchio, award-winning restaurateur, Top Chef head judge, and food activist, founded the beloved Manhattan restaurant Craft in 2001, quickly snagging three stars from the New York Times and helping to popularize farm-to-table dining. After New York was attacked on 9/11, Craft not only survived, but in the ensuing 19 years, it spawned a fine-dining mini-empire, with several outposts in New York, another in Los Angeles, and two in Las Vegas.


Now New York is facing another unthinkable catastrophe — this time, along with the entire world — and the restaurant industry is threatened as never before. Last week, Danny Meyer, Colicchio’s one-time partner, shut down all 19 of his storied establishments, laying off 2,000 people — some 80% of his workforce. Thomas Keller furloughed 1,200. And Colicchio has done the same, laying off all but a few of his 300 employees.


Recognizing an existential crisis for his industry — with many other sectors of the economy sure to follow — Colicchio has turned his attention to defending independent restaurants and their 11 million employees around the country from total devastation. The provisions he fought for were passed by Congress earlier this week. If there’s any lesson to be learned from the crisis, he says, it’s that unchecked capitalism — from the obsession with quarterly earnings to the profits-at-any-cost mentality of our captains of industry — has failed us. Perhaps a more thoughtful approach awaits us on the other side. He shared his experience with Marker.
— As told to Aaron Gell


[IMG]https://miro.medium.com/max/178/1*nAwQ9yMcmO2MhTP9sA8BYA.png[/IMG]I’m a news junkie, so I was aware of what Covid-19 was doing to China, and about a month ago I started to realize it had a real potential to spread around the world. I had seen Bill Gates talk about this, and it was clear we weren’t prepared, especially given how contagious this virus seemed to be. Meanwhile, we saw the leadership of the country in total denial. Listening to the president downplay the danger, I thought, “We’re screwed. We’re not going to have the response we need.”


About a week after that, we saw a huge drop-off in reservations for large parties. Our Vegas restaurants do a big conference business, and within a day, they all canceled.

Cash flow is our lifeblood. We look at that more than any other metric. When we bring in revenue, we’re using it to pay bills from 30, 45 days ago.
I got my executive group together — myself, the COO, director of HR, director of finance, the executive chef over all the restaurants — and we started making adjustments. We stopped purchasing wine and any nonessential items and started talking about staffing levels.

Cash flow is our lifeblood. We look at that more than any other metric. When we bring in revenue, we’re using it to pay bills from 30, 45 days ago. Anything extra we’ve been putting into the business. In the past 12 months, we opened a restaurant — that cost close to $1 million — and we renovated our private dining room at Craft to make it a breakfast and lunch spot. That was about $350,000.

The night of March 12, I realized we were probably going to have to shut everything down. I called Danny Meyer the next morning. We’re ex-partners, but we’re still close, and whenever there’s something big going on in our industry, I like to bounce ideas off him. He said they were thinking the same thing. The day after that, the government shut down the whole industry except for takeout and delivery.

That didn’t seem like the right move for us. There’s that picture of delivery people waiting outside Carbone. I think you’ve got to ask yourself a question: Are you willing to put your staff at risk? Because that’s what happening here. Look, if you’re feeding health care workers, people providing essential services, I think that’s fine. If you’re serving $60 veal parmesans, maybe not.

Between four restaurants in New York and one in L.A., we employ 300 people. There are also two Craft restaurants in Las Vegas, which we manage but don’t own. The initial plan was to bring as many staffers as possible into the East 19th Street space and tell them personally. It didn’t feel right to do it by email. But I woke up the following morning and just thought, “There is no way I want all these people in one big space. It’s too dangerous.” We wound up calling people instead.
The impact is way beyond us. It works its way through the food chain: You’re talking about fishermen, farmers, suppliers.

We have a policy where staff members get gift certificates to eat in any of our restaurants in exchange for offering feedback. That Sunday night, I showed up for our last service before closing, and a bartender who has been with me since the beginning — 19 years — was sitting there with his wife and his young daughter. I got choked up. I realized I couldn’t fall to pieces in front of his little girl, but it’s really emotional. Especially at Craft, we’ve all known each other for a long time. Telling your employees you’re closing is the hardest thing in the world.

Nobody was angry. They were scared; they were emotional; they were worried about each other. But there was a real sense of, “Hey, we’re in this together.”
Plus, the impact is way beyond us. It works its way through the food chain: You’re talking about fishermen, farmers, suppliers. I was talking to an oyster farmer on the south shore of Long Island. He doesn’t know what to do. He’s scrambling to put together a home delivery service. There are crops in fields that just got picked — what do you do with them? Some farmers markets are open, but you set up your tables, and people aren’t coming out.

As for our staff, we made the last payroll, and that was it. I kept a handful of my senior people together, because if we reopen — when we reopen — I’ll need them to make it happen. But they all took 50% pay cuts. There was no way around it.

One thing that’s not well understood about the industry is that the profit margins are so thin. If you’re doing 10%, that’s good. Of course, we try to pay shareholders and partners as best we can, but when you’re running a restaurant, there’s a certain amount of upkeep you can’t neglect.

I think we were in better shape than some. We’d paid off most of our debt. But because money has been cheap over the past couple years, and it’s been like grow, grow, grow, a lot of restaurant groups went to banks and took out big loans, figuring, “Well, the money’s coming in. We’ll be okay.” Then the cash flow stops dead. A lot of companies are in big trouble.

People started talking about setting up GoFundMe pages, doing fundraisers, and all that. But this is no time to pass the tip cup. I’ve been working on hunger issues for a long time, and I’ve seen how the charitable response winds up masking the need for government intervention. This problem was too big for charity. Our government needs to step up.

This exposes the limits of our system and what happens when capitalism is unchecked. Even CEOs of big companies are starting to recognize something’s off.
I made a few calls, and we pulled together a bunch of people, knitted a few groups and constituencies together, created a working group, hired lobbyists and a comms team, and got to work. Within two days, we launched the Independent Restaurant Coalition. I think there are 500 members so far. The main objective is to make sure independent restaurants would be able to tap into whatever stimulus Congress puts together. I’m not saying the National Restaurant Association doesn’t represent us, but they’re also looking out for big chains. We needed our own group.


The Senate just passed the CARES Act, and it contains all the key provisions we pushed for, including four months of unemployment and loans to restaurants, with forgiveness to cover expenses and payroll.


The optimist in me looks at this as an opportunity for the country to examine its priorities. This is devastating for so many people, but on the positive side, it exposes the limits of our system and what happens when capitalism is unchecked. Even CEOs of big companies are starting to recognize something’s off. The focus on quarterly earnings — we need to see the end of that. All the outsourcing of manufacturing to China, now we see the pitfalls of that. Maybe it’s okay to make a little less profit so the economy can survive shocks like this. Because it will happen again.


For years, we’ve been fed the idea that big government is bad. And I agree, dumb big government is bad. What we need is smart government that’s going to understand the needs of real people and be responsive. And we’re seeing that now. People are starting to realize the role government has to play.
I’ve spent the past week doing interviews and organizing the response, eight in the morning till 10 at night. But I’m stuck at home like everyone else. I’m at our home in Brooklyn, working from a makeshift office set up at the dining room table, trying not to kill my kids. We have three boys—nine, 10, and 26. My wife and I are trying to keep things as normal as possible. We had a birthday party for one of my sons the other day on Zoom. We play card games. Sushi Go! and Exploding Kittens are the current favorites. And, of course, I’ve been cooking. I started getting into sourdough a few months ago. I’ve got my starter going, and I probably bake a loaf of bread every other day now.


As for the future, I think the industry will survive. People are always going to want to come together to celebrate and share meals. Restaurants aren’t going away, but I do wonder what they’re going to look like. I’ve been asking my staff to think about how we can reinvent things. It will change for sure.
I think the bigger question is what does business look like, period. Does this grease the skids for national health care and finally move the burden away from small businesses? What we’re seeing now is how fragile the whole system is. Hopefully we’ll come out of it and build something stronger and better for everyone.

https://www.zerohedge.com/markets/it...ops+to+zero%29


Via Doug Noland's Credit Bubble Bulletin blog,
Being an analyst of Credit and Bubbles over the past few decades has come with its share of challenges. Greater challenges await. I expect to dedicate the rest of my life to defending Capitalism. One of the great tragedies from the failure of this multi-decade monetary experiment will be the loss of faith in free market Capitalism – along with our institutions more generally.



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Somehow, we must convince younger generations that the culprit was unsound finance.


And it’s absolutely fixable.

Deeply flawed, experimental central banking was fundamental to dysfunctional markets and resulting deep financial and economic structural impairment. The Scourge of Inflationism. If we just start learning from mistakes, we can get this ship headed in the right direction.

Over the years, I’ve argued for “rules-based” central banking that would sharply limit the Federal Reserve’s role both in the markets and real economy. The flaw in “discretionary” central banking was identified generations ago: One mistake leads invariably to only bigger blunders.

What commenced with Alan Greenspan’s market-supporting assurances of liquidity and asymmetric rate policy this week took a dreadful turn for the worse: Open-end QE, PMCCF, SMCCF, MMLF, CPFF, MSBLP, TALF… They’re going to run short of acronyms. Our central bank has taken the plunge into buying corporate bond ETFs, with equities ETFs surely not far behind. The Fed’s balance sheet expanded $586 billion – in a single week ($1.1 TN in four weeks!) – to a record $5.25 TN. Talk has the Fed’s new “Main Street Business Lending Program” leveraging $400 billion of (this week’s $2.2 TN) fiscal stimulus into a $4.0 TN lending operation. Having years back unwaveringly set forth, the ride down the slippery slope of inflationism has reached warp speed careening blindly toward a brick wall.

...
The Fed “very alert about financial risk”? What exactly has the Fed been “looking at at much more detail”? Financial excess? Speculative leveraging? Mounting vulnerabilities in the derivatives complex, the ETF universe, corporate leverage? Global hedge fund leverage? Highly levered mortgage companies? We’ve now witnessed two historic bouts of market illiquidity and dislocation – exposing massive speculative leveraging – and Dr. Bernanke sticks resolutely with his “global savings glut” thesis. Central banks have during this cycle created more than $16 TN of new “money,” for heaven’s sake. Of course it’s been “a monetary policy thing.”


I’ve always viewed Bernanke as a decent man. But as a central banker – as the mastermind for the terminal phase of a runaway global monetary experiment – he’s been a disaster. His analytical framework is so flawed it’s difficult to comprehend the amount of power and discretion placed in his hands. It was Bernanke that invoked the government printing press to resolve whatever might ail the markets or economy. His crackpot theories that the Fed’s failure to print sufficient money supply after the ’29 stock market crash caused the Great Depression should have been sternly rebuked years ago. Worst of all, Dr. Bernanke specifically used the risk markets (stocks, corporate Credit, derivatives and such) as the primary mechanism for post-Bubble system reflation. The former Fed chief is the father of “QE,” “helicopter money,” and the ETF complex that took the world by storm.

Documenting for posterity the ever-lengthening list of lending facilities, this week from the Federal Reserve:

“The Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance and the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds.”

“The SMCCF will purchase in the secondary market corporate bonds issued by investment grade U.S. companies and U.S.-listed exchange-traded funds whose investment objective is to provide broad exposure to the market for U.S. investment grade corporate bonds.”
“The Money Market Mutual Fund Liquidity Facility (MMLF) to include a wider range of securities, including municipal variable rate demand notes (VRDNs) and bank certificates of deposit.”

“Facilitating the flow of credit to municipalities by expanding the Commercial Paper Funding Facility (CPFF) to include high-quality, tax-exempt commercial paper as eligible securities.”

“…A Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts by the SBA.”
“The TALF is a credit facility authorized under section 13(3) of the Federal Reserve Act intended to help meet the credit needs of consumers and small businesses by facilitating the issuance of asset-backed securities (“ABS”) and improving the market conditions for ABS more generally… The TALF SPV initially will make up to $100 billion of loans available.”

The Fed was to expand its assets by at least $625 billion this week. In concert with global central bankers, unprecedented liquidity operations coupled with a massive U.S. fiscal program was sufficient to reverse collapsing global markets. Once reversed, there was more than ample fodder from the reversal of short positions and market hedges to power a historic market spike (“biggest three-day surge since 1931”).


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Chairman Jay Powell, appearing Thursday on the Today Show: “There’s nothing fundamentally wrong with our economy. Quite the contrary. The economy performed very well right through February. We’ve got a fifty-year low in unemployment for the last couple years. So, we start in a very strong position. This isn’t that something is wrong with the economy.”

Powell’s optimism was echoed by regional Fed presidents: Dallas’s Robert Kaplan: “We were strong before we went into this, and we believe that we’ve got a great chance to come out of this very strong.” Atlanta Fed President Raphael Bostic: “The economy started at a great place.”

The Fed believes it has “temporarily stepped in to provide loans” - for a system considered fundamentally sound and robust. I am an analyst and not a pessimist. But, most unfortunately, the opposite holds true. U.S. and global economies were unstable “Bubble Economies” fueled by Credit and financial excess, most notably by unprecedented asset market speculative leverage. Fed assets surpassed $5 TN this week, and I’ll be stunned if they ever again fall below this level. I am reminded of Fed officials having actually expected in 2011 that its “exit strategy” would return the Federal Reserve balance sheet to near pre-crisis levels – only to double assets again in about three years to $4.5 TN.

The Austrian “Bubble Economy” concept will be invaluable as we analyze dynamics going forward. From the economic perspective, a decade of ultra-loose financial conditions incentivized businesses to over-borrow – from multinational corporations, to mid- and small business to sole proprietorships. Tens of thousands of unprofitable (and negative cashflow generating) enterprises proliferated throughout the economy – from Silicon Valley “tech Bubble 2.0,” to shale, alternative energy, biotech, media, entertainment and leisure, and so on. Ultra-loose financial conditions stoked over- and malinvestment, while generally distorting business spending patterns.

Confounding post-Bubble financial and economic landscapes will create investment decision mayhem.

U.S. and global economies are severely maladjusted – and ravenous Credit gluttons. Importantly, this ensures Trillions of monetary stimulus along with Trillions of fiscal spending will be absorbed as if dumping buckets of water onto the scorching desert sand.

Stimulus will for a time sustain scores of uneconomic enterprises, at the cost of prolonging the workout process. Nonetheless, with Bubbles popping in shale, technology, leisure and entertainment and elsewhere, millions of job losses will prove permanent.

Negative wealth effects will also wreak havoc on consumer spending patterns. From the Fed’s Z.1 report, Household Net Worth (Assets less Liabilities) ended 2019 at a record $118.4 TN, having ballooned $23 TN, or 21%, over the past three years. Household Net Worth ended 2019 at a record 545% of GDP, up from previous cycle peaks 492% (Q1 2007) and 446% (Q1 2000). Household holdings of Equities (Z1: Equities and Mutual Funds) ended Q4 at $30.8 TN, a record 142% of GDP (up from 2007’s 102% and 2000’s 117%).
Now comes the downside.

1. Easy gains from asset inflation are spent more freely than incomes.
2. Changing spending patterns will expose the fragile underbelly of the “services” and consumption-based U.S. economy.
3. Meanwhile, some of the most expensive real estate markets in the country will suffer collapsing demand, with major effects on construction, spending and confidence (not to mention loan losses).

One of the many lasting pandemic consequences will be a reassessment of living in New York City, San Francisco, Los Angeles and other densely-populated urban centers. Beyond negative asset market wealth effects, I expect a prolonged impact on high-income earners (i.e. Wall Street compensation, executive pay, company stock rewards, Silicon Valley, entertainment and media, real estate-related, etc.). Expect some upper-end real estate Bubbles – having persevered even through the last crisis - to finally succumb. The bursting of an unprecedented nationwide commercial real estate Bubble will have major impacts on construction and the finances of owners of real estate, as well as on the underlying loans, securitizations and derivatives.

Every segment of the economy will be impacted – many deeply. Expectations for a quick recovery are wishful thinking. And I doubt it will be possible for the Fed and global central bankers to step back from market liquidity support operations. We should not be surprised by ongoing weekly Fed balance sheet growth of several hundred billion. Household, business and market confidence have been shaken – and will be slow to recover. Markets have been conditioned over recent decades to anticipate rapid recovery. Confidence was bolstered this week by incredible “whatever it takes” measures. I’m just not convinced the necessity for ongoing rapid central bank expansion will prove as confidence inspiring.

New York state reported its first coronavirus infection on March 1st. In less than four weeks, cases multiplied to 45,000. From the February 22nd CBB: “Cases tripled to nine Friday in Italy, with the first death reported.” Italy reported 919 deaths Friday, with total deaths of 9,134 and cases of 86,498.

Governments have made very unfortunate missteps managing this pandemic. Many now look to the trajectory of China’s outbreak for hope that cases elsewhere will begin declining soon - with economic normalization commencing in earnest. Yet Western democracies have a major disadvantage in managing a pandemic. Societies would not tolerate health authorities going door to door checking for symptoms and removing those with fevers (sometimes kicking and screaming) for immediate transport to isolation facilities.

One has only to view photos of a bustling Central Park or videos of crowded NYC subways to realize that “lock down” means something quite different in the U.S. than it does in Wuhan and Hubei Province. And only China has 170 million cameras and a sophisticated surveillance system – that in one case provided the ability to track an infected individual “down to the minute” as he traveled between provinces and along public transit in Nanjing.

Bill Gates’ comments (CNN Coronavirus Townhall, March 26th) resonated. Having warned of pandemic risk in a 2015 TED talk, and after years of being fully immersed with the Bill and Melinda Gates Foundation’s efforts in infectious disease control, vaccines and other global health initiatives, Gates possesses deep understanding of the subject matter. His view is that nationwide shutdowns and social distancing efforts must be strictly maintained until the number of active coronavirus cases declines to a low and manageable level. A cursory glance at one of the nationwide outbreak maps is sufficient to appreciate that the outbreak is currently out of control throughout the country.

We’ll learn more next week, but it appears the White House is moving forward with a plan to gauge the outbreak across the country in a county by county effort to get the economy moving back toward capacity as soon as possible. It’s difficult for me to see governors, mayors, local government officials and vulnerable healthcare systems around the country supporting any relaxation of pandemic management efforts.


Unfortunately, there will be no speedy economic recovery. Let’s hope the change of season offers some relief. But then there’s the loaming prospect for a second wave next fall and winter. Various experts, including Bill Gates, say a vaccine is a year to 18 months out. There’s going to be a hell of a battle in deciding how best to move the economy forward from here.

As for the markets: markets will do what markets do. And global market dynamics are incredibly unsound. Count me skeptical that the biggest three-day rally (in the DJIA) since 1931 is a sign of health. I fully appreciate that “buy the dip, don’t be one” has been richly rewarding for a long time now. “There couldn’t be a better time to start investing [than] right now… Fortunes are going to be made out of this time… I can guarantee you that if you stay in and you just stick with it, three years from now you will be very, very happy that you did.” I’d be especially cautious with guarantees. Suze Orman (and most) have little appreciation for what is now unfolding. The younger generation has yet to experience a grueling protracted bear market. “Buy the dip” and “buy and hold” are poised to dishearten.


Incredible central bank liquidity operations yanked global markets back from the precipice.
In the three sessions, Tuesday to Thursday, the Dow surged 21.3% (ending the week up 12.8%). The week saw the S&P500 rally 10.3%, lagging the Japanese Nikkei’s 17.1% surge. Brazil’s Bovespa recovered 9.5%, as emerging equities bounced back. Mexico’s peso rallied 4.6%, leading an EM currency recovery. In “developed” currencies, the Norwegian krone rallied 11.6%, in another week of acute market instability.

After spiking 44 bps the previous week, investment-grade Credit default swaps (CDS) this week sank 40 to 112 bps. The iShares investment-grade corporate bond ETF (LQD) surged 14.7%, more than reversing the previous week’s extraordinary 13.3% decline.

The Fed’s move to open-ended QE coupled with corporate bond and bond ETF purchases was instrumental in arresting market collapse and sparking upside dislocation. This, along with expanded central bank swap arrangements, reversed global market illiquidity and panic.

If I believed global markets were chiefly facing liquidity issues, I would be more hopeful.
Illiquidity was pressing, and global central bankers responded with “whatever it takes” (and it took a lot). Believing the global Bubble has burst, I see the overarching issue more in terms of a developing Solvency Problem. Burning the midnight oil in homes around the globe, rating agency employees enjoy enviable job security. And that would be Credit analysts for corporations, financial institutions, municipalities, investment-grade bonds, junk debt, structured products and nations. Credit and Solvency issues will turn systemic.

It’s a different world now. And while “whatever it takes” can accommodate speculative deleveraging and generally support market liquidity, The Solvency Problem will prove a historic challenge. The global economy has commenced a major downturn, hitting an already impaired global financial system. While markets enjoyed a recovery this week, EM debt is turning toxic. Energy-related debt is already toxic. Risk of general business and real estate debt turning toxic is growing rapidly.

As I posited last week, I see an environment hostile to speculative leverage. This ensures a fundamental tightening of financial conditions and attendant downward pressure on global asset markets – securities and real estate, in particular. And with Bernanke’s 40-year bond yield “ski slope” at the end of a historic run, central banks have today little capacity for using rate cuts to reflate asset prices.


The U.S. economy is in trouble. Europe is in greater trouble. EM economies face a disastrous combination of financial and economic hardship. And just as China moves to restart its economy, the massive Chinese export sector is confronting collapsing global demand. How long Beijing can hold things together is a critical issue. In the theme of bursting Bubble economies and unfolding Solvency Problems, no country faces greater challenges than China (with its deeply maladjusted economy and gargantuan financial sector).

https://www.zerohedge.com/markets/fi...ops+to+zero%29


Authored by Mike Shedlock via MishTalk,
Official policy finally caught up with reality. Reserves are fictional.


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Official Announcement

With little fanfare or media coverage, the Fed made this Announcement on Reserves.

As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.

Amusingly, a few days ago yet another article appeared explaining how the Money Multiplier works. The example goes like this: Someone deposits $10,000 and a bank lends out $9,000 and then the $9,000 gets redeposited and 90% of the gets lent out and so an and so forth.

The notion was potty. That is not remotely close to how loans get made. Deposits and reserves never played into lending decisions.

What's Changed Regarding Lending?

Essentially, nothing.

The announcement just officially admitted the denominator on reserves for lending is zero.
There are no reserve lending constraints (but practically speaking, there never were).


Fictional Reserve Lending Flashback

I wrote about this in December of 2009 in Fictional Reserve Lending and the Myth of Excess Reserves.
The flashback is amusing as I reference a number of people worried about hyperinflation.
Here are the facts of the matter as I explained in 2009.

Money Multiplier Theory Is Wrong

1. Lending comes first and what little reserves there are (if any) come later.
2. There really are no excess reserves.
3. Not only are there no excess reserves, there are essentially no reserves to speak of at all.

The rationale behind the last bullet point pertains to banks hiding losses. Regulators suspended mark-to-market accounting.

When Do Banks Make Loans?

1. They meet capital requirements
2. They believe they have a creditworthy borrower
3. Creditworthy borrowers want to borrow

All three requirements must be met.

1. Banks generally do not lend if they are capital impaired.
2. Clearly someone must want to borrow.

Point two is worthy of discussion.

Banks may not have a creditworthy borrower, they just have to believe it, or they have an alternate belief that applies. In 2007 banks knew full well they were making mortgage liar loans.

So Why Did They?

Because banks bought into the idea home prices would not go down so they did not give a rat's ass if someone was out on the street. All they cared about was the quality of the loan. If Home prices appreciated, they were covered.

From a bank lending aspect, nothing has changed. Neither reserves nor deposits never entered into the picture.

Denominator Officially Zero

The denominator on lending is now officially zero. But nothing really changed. The Fed was always ready, willing, and able to supply unlimited reserves.
The only thing that's new is the official announcement that reserves are fictional.

Capital Concerns in 2009

There are capital concerns, but note that in March of 2009 the Fed suspended mark-to-mark accounting.
That was the key announcement that launched the bull market.


Capital Concerns Now

There are still capital concerns, but the Fed stepped up to the plate and is willing to buy corporate bonds.

Guess who is going to unload as much questionable junk as possible and guess who will buy it.

Banks know they have losses but hey will not admit them.

All it takes to mask them is a clever swap takes the assets off the balance sheet of the banks and temporarily hides them on the balance sheet of the Fed.

What About New Lending?

Hiding junk is not new lending. It is not new production. And it is not new hiring.


To achieve real growth we need new production, not hiding of losses.

Losses and Zombies

Once again, the Fed has chosen to hide losses and shelter zombie corporations.
This will be a drag on any recovery.

All Excess Now

Hey, look on the bright side.
By definition, all reserves are now excess reserves. Banks can collect on all reserves.
The rate may not be much, but Interest on Excess Reserves = Interest on Reserves
Ain't life grand?


But, But, But, But

1. Unemployment Claims Spike to 3.28 Million, New Record High
2. Coronavirus Trend: One in 10 of Those Hospitalized Die
3. Retail Grinds to a Halt as 47,000 Stores Close
4. US Output Drops at Fastest Rate in a Decade

But banks are saved. What more could you possibly want?


Meanwhile, Nothing is Working Now (Except for Banks)

For a 20-point discussion of where we are headed, please see What's Next for America?

https://www.detroitnews.com/story/op...ce/2922272001/

OPINION
Opinion: Michigan’s doctors fight coronavirus, and governor's office


Kathy HoekstraPublished 6:29 p.m. ET March 26, 2020 | Updated 10:25 p.m. ET March 26, 2020

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The coronavirus is unquestionably a significant threat to the health and safety of people throughout the world. The infection’s worldwide death toll is more than 23,000 and counting, 1,163 in the United States and 60 here in Michigan.

There is a silver lining however, in the numbers of people who are recovering from COVID-19 — more than 122,000 at this writing.

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Michigan Governor Gretchen Whitmer speaks during a press conference Thursday in Lansing. (Photo: The Detroit News)

Even greater hope lies in a promising new treatment using a combination of old drugs: Plaquenil (hydroxychloroquine) and a Z-Pak (azithromycin).

These well-known drugs have very favorable safety profiles. Several small studies have shown significant reduction in viral loads and symptom improvement when combining these medications in COVID-19 patients. Though these studies are small and do not prove efficacy, the results were so promising that the authors of the most famous study concluded:

“We therefore recommend that COVID-19 patients be treated with hydroxychloroquine and azithromycin to cure their infection and to limit the transmission of the virus to other people in order to curb the spread of COVID-19 in the world.”

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Based on these and other results physicians and governments around the world are now using these medications to claimed great effect. Even in the state of Michigan, prominent hospitals such as the Henry Ford Hospital and the University of Michigan have added hydroxychloroquine to their treatment protocols for hospitalized patients with COVID-19.

By doing so, physicians are using these medications “off-label,” that is, without the costly and time-consuming process of Food and Drug Administration approval. The federal agency’s approval process performs the good task of helping to ensure medications safely do what they claim to do. However, lack of FDA approval does not mean lack of efficacy. It means lack of governmental confirmation of efficacy.

“Off-label” use of medications is legal and common. It may even account for as many as 1 in 5 prescriptions in the United States. This practice is even accepted by the FDA. Furthermore, given the severity of the COVID-19 pandemic and the promise of these medications the FDA has avoided condemning the “off-label” use of hydroxychloroquine for COVID-19.

But if you live in Michigan, and you or a loved one is infected with this potentially lethal disease, you’re out of luck.

Gov. Gretchen Whitmer’s Department of Licensing and Regulatory Affairs literally threatened all doctors and pharmacists in the state who prescribe or dispense hydroxychloroquine to treat COVID-19.

The agency’s March 24 letter warns physicians and pharmacists of professional consequences for the prescribing of hydroxychloroquine (and chloroquine). Beyond the rational recommendation against hoarding as production of this medication needs to be ramped up, the letter deviates into open threats of “administrative action” against the licenses of doctors that prescribe hydroxychloroquine.

The letter also instructs pharmacists to ignore physician orders for this medication. Due to the debate over a pharmacist’s right to refuse to fill medications that go against their religious beliefs, this could place pharmacists in the unprecedented position of being told that they must fill prescriptions that violate their “conscience (religious belief)” but must not fill prescriptions to treat COVID-19.

Even worse, the letter indicates health care providers are “required to report” their fellow physicians who are prescribing these medications. This draconian measure carries ominous Gestapo-like overtones of neighbor reporting neighbor to “authorities.”

During a time of crisis, in which physicians continue to see patients despite not having enough protective gear, this threatening, authoritarian stance from our governor is counterproductive at best.

What makes this directive more of a head-scratcher is that the same day the state issued its threatening nastygram to Michigan’s health care providers, Whitmer’s counterpart in New York started clinical trials of the very same drugs.

With his state now the nation’s pandemic epicenter, and with the blessing and help of the president and FDA, New York Gov. Andrew Cuomo brought in 70,000 doses of hydroxychloroquine, 10,000 doses of Zithromax and 750,000 doses of chloroquine.

The implications of Whitmer and her administration’s knee-jerk scare tactics should terrify all Michigan residents. Not only is our state’s top leader threatening the selfless health care workers who are on the frontline trying to save lives, but she’s denying possible life-saving medications to actual COVID-19 victims.

Kathy Hoekstra is a Michigan-based communications writer.

https://www.thegatewaypundit.com/202...world-history/

How China, The WHO, The CDC and the Mainstream Media Worked Together to Create the Greatest Pandemic Hysteria in World History


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by Jim Hoft March 29, 2020


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China, the World Health Organization, the CDC and the leftist media combined to create the greatest pandemic hysteria in world history. Here’s how they did it.
China


The entire coronavirus pandemic started in Wuhan, China. A large city estimated at around 13 million in the heart of China. This city rarely sees a blue sky and is busy and overcast from the smog that is constantly in the air. This is where the coronavirus was first reported.


Initially it was a curious case but soon the media began reporting incidents of people dying in the streets and a healthcare system totally overwhelmed. (The media never told you that the health care in Wuhan is third world with very few facilities and doctors.) Stories of crematoriums working overtime were reported.


But was this all a set up by the Chinese as was warned twenty years ago? The China economy was in shambles after its own overbuilding and faulty financial reporting. The Trump policies also made a huge impact on an already collapsing economy. Was the coronavirus a means to fight back?

America can’t be beat via traditional warfare so the Chinese know their best chance is with political warfare instead. Was the coronavirus an effort to damage the US via political warfare? If so, fortunately for the Chinese they had help.


The WHO
The World Health Organization reportedly has been corrupt for some time. Similar to other world bodies like the UN, corrupt individuals now run the WHO which is also heavily influences by China.


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As we reported two weeks ago, the controversial Ethiopian politician and Director General of the World Health Organization (WHO), Tedros Adhanom Ghebreyesus, claimed in a press conference in early March that the fatality rate for the coronavirus was many multiples that of the fatality rate of the common flu.


This egregiously false premise has led to the greatest panic in world history.

The Director General of the WHO spoke on March 3, 2020 and shared this related to the coronavirus:
While many people globally have built up immunity to seasonal flu strains, COVID-19 is a new virus to which no one has immunity. That means more people are susceptible to infection, and some will suffer severe disease.


Globally, about 3.4% of reported COVID-19 cases have died. By comparison, seasonal flu generally kills far fewer than 1% of those infected.


This statement led to the greatest panic in world history as the media all over the world shared and repeated that the coronavirus was many, many times more deadly than the common flu.


The problem is his statement was false. It was not accurate!


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The Gateway Pundit reported, that the coronavirus fatality rate reported by the media was completely inaccurate and the comparative rate is less than the current seasonal flu.


Here’s a summary of the analysis proving the Director General’s statement was very misleading and materially false:
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The WHO did not include an estimate for individuals who have had the coronavirus and have not been tested. For the flu, this number is 39 million but for the coronavirus it is zero. Using the same estimates the coronavirus would have a similar fatality rate as the flu. This faulty analysis helped create the greatest pandemic panic in world history.


Dr. Tedros at the WHO announced faulty estimates for the coronavirus because he, the WHO and his country, Ethiopia, are all heavily influenced by Chinese money.

Tedros reports whatever China wishes. As noted by Yaacov Apelbaum, China has invested millions in Ethiopia. This may be in part why Tedros has made the following statements:
Given the misinformation about the novel coronavirus epidemic, WHO has communicated with some companies including Google to ensure that the public will get the authoritative information from the WHO.”


“Travel restrictions [to and from China] can have the effect of increasing fear and stigma, with little public health benefit.”

“The lockdown of people is unprecedented in public health history, so it is certainly not a recommendation the WHO has made.”

“The WHO highly appreciates the tremendous efforts China has made to contain the epidemic.”

The CDC
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The brother of the CDC’s Dr. Nancy Messonnier, is the corrupt disgraced former DAG Rod Rosenstein. So it was no surprise when Dr. Messonnier dropped a bomb on President Trump while he was on an official trip to India.


In late February the CDC unexpectedly announced startling news about the coronavirus in the US. This rattled the markets and led to a major market downturn of hundreds of points in the DOW for the second straight day:
As we’ve seen from recent countries with community spread, when it has hit those countries, it has moved quite rapidly. We want to make sure the American public is prepared,” said Dr. Nancy Messonnier, director of the CDC’s national center for immunization and respiratory diseases. “As more and more countries experience community spread, successful containment at our borders becomes harder and harder.”


Dr. Nancy continued:
Ultimately, we expect we will see spread in this country. It’s not so much a question of if this will happen anymore, but rather a question of exactly when this will happen and how many people in this country will have severe illness,” Messonnier said Tuesday.


The Dr. continued:
I understand this whole situation may seem overwhelming and that disruption to everyday life may be severe, but these are things people need to start thinking about now,” said Messonnier, who told her own family to begin preparing for community spread and the resulting “significant disruption” of their lives.


Right now CDC is operationalizing all of its pandemic preparedness and response plans, working on multiple fronts including specific measures to prepare communities to respond to local transmission of the virus that causes COVID-19,” Messonnier said. “Now is the time for businesses, hospitals, communities, schools, and everyday people to begin preparing as well.”


Dr. Messonnier’s comments came as the President and the First Lady were outside the country and traveling in India. The trip was going very well as expected, but this news was a startling rebuke of the President’s efforts to date to curtail the virus.


Dr. Messonnier’s comments were eerily similar to past Presidential trips when former and corrupt DAG Rod Rosenstein and the corrupt and criminal Mueller gang would drop shocking news as the President was overseas.


In July 2018, for example, corrupt Rosenstein, announced the indictments of 12 Russians right before the President was departing on a trip to meet Russian President Putin. Rosenstein reported on these Russians who will never come to the US for prosecution and who likely had nothing to do with anything related to the crimes.

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The CDC is also responsible for the failure of Americans to receive test kits on a timely basis. Was this planned to embarrass the President?


The Media
The Mainstream Media has been horrible in covering the coronavirus. Basically nothing the President does is good enough. These hateful people don’t report positive actions by the President, like shutting down the border. The constantly overstate the crisis. This is the opposite of their actions during the Swine flu epidemic in 2009 when Obama was President:

The media in the US and around the world are corrupt and repeating China’s talking points. What the media seldom mentions is that the individuals who are dying from the coronavirus are elderly and those with pre-existing conditions. Everyone else is at a very, very low risk of dying. The fatality rate for young people is almost zero but we keep children from their schools.


In Summary
As Ann Coulter notes in her recent essay on “”how do we flatten the panic curve?:
If, as the evidence suggests, the Chinese virus is enormously dangerous to people with certain medical conditions and those over 70 years old, but a much smaller danger to those under 70, then shutting down the entire country indefinitely is probably a bad idea.


But even when the time is right — by Easter, June or the fall — there will be no one to stop the quarantine because the media will continue to hype every coronavirus death, as if these are the only deaths that count and the only deaths that were preventable.


She concludes:
Today, the epidemiologists are prepared to nuke the entire American economy to kill a virus.

What about the jobs, the suicides, the heart attacks, the lost careers, the destruction of America’s wealth?


It’s time for Americans to stand up and demand common sense in spite of what China, the WHO, the CDC and the Media are telling us.

The coronavirus is not even as deadly as the flu, it’s not nearly as deadly as swine flu, so maybe we should turn off our TV sets and just get back to work?

https://www.zerohedge.com/markets/cf...ops+to+zero%29

Last Friday, around the time of the quad-witching collapse which sent the S&P to levels not seen since Trump's inauguration, amid the flurry of headlines bombarding shell-shocked traders, was one that was particularly ominous if bizarrely incomplete. Shortly after the close, Bloomberg blasted the following headline:

1. CFTC PROVIDING RELIEF TO LARGE U.S. BANK ACTIVE IN OIL, GAS

There was little additional information to go with the report, aside from the CFTC saying it would temporarily exempt a U.S. bank from a requirement to register as a “Major Swap Participant” even though its growing energy swaps exposure would technically require it to do so by the end of the next quarter, and since the bank was not named, traders' attention quickly shifted to whatever the next crisis du jour, or rather du minute was.


However, late last week, Reuters reported citing two sources, that the bank in question was Virginia-based Capital One, best known for questionable retail lending and cheesy credit card commercials starting Samuel L Jackson.


So what exactly happened? According to a spokesman for the CFTC, the commodities regulator issued a waiver to protect the bank and its energy clients from "undue disruption," given the unprecedented market conditions over the past month amid the coronavirus outbreak.


“We have actively encouraged all market participants to identify regulatory relief or other assistance that may be needed to help support robust, orderly and liquid markets in the face of this pandemic,” the spokesman said, implicitly admitting that the CFTC intervention amounted to what was an effective bailout of the bank.


At the core of the issue were plunging oil prices, which ended up having a margin call effect on the bank's swaps exposure; and since Capital One’s waiver lasts until Sept. 30, if energy prices remain low or the bank’s exposure remains above the threshold, it will register as a swap participant or make business adjustments, the CFTC said on Friday.


And here is why anyone who currently has a deposit account at CapitalOne may consider quietly moving the money elsewhere: according to Reuters, the CFTC designation entails a number of complex and costly reporting and compliance obligations, which the CFTC spokesman said could hurt the institution’s ability to keep lending.


In short, CapitalOne made a terrible trade, betting via derivatives that oil would not plunge to where it is now - at 17 year lows - and only CFTC intervention prevented a margin call of unknown magnitude from being sent to Capital One's corner office. Which is surprising considering that the bank is a relatively small player in the energy lending and financing business, with energy loans accounting for just 1.4% of its total loan book, according to its filings.


As part of that business, Capital One enters into commodity swaps with its commercial oil and gas clients to help them mitigate the risk of energy price swings and the related borrowing risks. Typically, those trades do not bring Capital One’s swaps exposure anywhere close to the CFTC’s registration threshold, according to the CFTC’s Friday notice.


But the 50% plunge in crude oil prices caused by the coronavirus and a flood of supply by top producers has seen its exposure on those swaps balloon, putting it on course to hit the threshold by the end of this month, the CFTC said.


As Reuters details, the threshold kicks in if a bank has $1 billion in daily average aggregate commodity swap exposure that is not secured by collateral, such as cash margin. Which, it appears, was the case with CapitalOne.


Following the 2007-2009 financial crisis during which several major institutions were toppled by their derivatives exposure, Congress created a slew of swap trading laws to reduce systemic risk and increase the visibility of the market. However, the ad hoc decision to grant a waiver in this case has sparked worries that regulators are going too easy on banks in a bid to prop up lending, exposing them to more risk down the road if energy prices do not rebound.


In effect, the CFTC allowed CapitalOne to incur even greater ongoing losses, while buying it a quarter's worth of time, in hopes that oil rebounds. But what happens if instead of rebounding, oil keeps grinding lower and, as we warned earlier today, actually goes negative as oil storage space runs out? The cumulative exposure facing CapitalOne would be many billions, and could potentially render the bank insolvent.



That said, COF is not the only one: across the board, regulators have scrambled to grant regulatory relief, worried banks will pull back from lending and exacerbate corporate liquidity stress.


“The priority of the CFTC is not to prop up an ailing sector. It’s to ensure that the market is protected from risks,” said Tyson Slocum, a director at government watchdog group Public Citizen and a member of the CFTC’s Energy and Environmental Markets Advisory Committee.


But then, in an surprising and sobering admission that the CFTC did in fact participate in a quiet bailout of CapitalOne - because had the bank announced it was facing a $1+ billion margin call one can imagine what its depositors would do - Slocum added he was worried the agency would give exemptions to other banks caught flatfooted by the market turmoil.


"I’ve got concerns with over-leveraged banks in the oil and gas sector. I don’t want this to spread across the financial sector."


Dear Tyson: by letting CapitalOne get away with it, you have once again propagated moral hazard and guaranteed that this will spread across the financial sector, as bank after bank comes begging for a similar stealthy bailout, all the while doing nothing but praying that oil miraculously rebounds in the next three months. But what if it doesn't, and who will tell CapitalOne's depositors that they are now sitting on a ticking time bomb? This guy?



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https://www.zerohedge.com/health/gre...ops+to+zero%29

Authored by The Zman,
Has the world gone mad? It certainly seems that way to some of us. Even the most cynical never imagined the government shutting down the country for fear of a virus, but it has suddenly become the new normal. The cynical, if they thought of it at all, would have thought the opposite. Instead of a great lock down, the response would have been for the beautiful people to insulate themselves from harm, while abandoning the rest of us to the plague. Instead, we have all gone mad together.

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Not everyone has got the fever, that is this panic fever, not the one caused by the Chinese coronavirus.

Our world is now firmly divided into two camps.

1. There are those fully invested in the great panic over the virus and
2. there are those who look at the other camp, gobsmacked by what appears to be a general madness.

Those in panic look at the rest of us the same way preppers look at normal people. They just assume the gods will strike us down for doubting the virus.

Of course, the people in the skeptic camp could be the ones suffering from some form of madness that prevents them from seeing the threat. The trouble is, the great plague is not exactly lighting up the scoreboard. America has tested over 600,000 people suspected of having the virus. Over 500,000 tested negative. Of the positives, 12,000 needed hospital care. In a country of over 320 million people with 200,000 empty hospital beds at any one time, that’s not much of a crisis.

Yet, despite the numbers, formerly sober-minded people continue to carry on as if there are bodies in the streets. Steve Sailer, a man not known for excitability, is calling this virus a great adversary of the human race. Greg Cochran has completely lost his marbles over this thing. Geneticist and HBD enthusiast Razib Khan is in hiding, convinced the end times are upon us. In fact, the whole HBD community is a click away from fleeing to Antarctica to wait out the end of civilization.

Of course, part of the panic, a symptom of that particular virus, is a set of abracadabra phrases that have become so common they seem like something from a secret society, understood only by the initiates. The duller sorts chant about “exponential growth” while others talk about “the hospitals being overwhelmed.” That’s why we have to “flatten the curve” and “slow the spread.” These incantations are to chase away doubt and reinforce the belief that people are dying in the streets.

The dying in the streets bit is not much of an exaggeration. A popular bit of folklore now among the panicked is some version of the anonymous ER doctor or nurse relaying how they are overwhelmed and letting people die in the hallways. This urban legend turned up in China, Washington, Italy, New York and now New Orleans. Formerly sensible people now pass these whoppers around on-line, never bothering to think that maybe they are being fed a just-so story by people seeking attention.

One emerging aspect to the madness is the moral dimension. The Human Biodiversity (HBD) crowd seems to have been hardest hit. They spend a lot of time contemplating nature and their fellow man’s refusal to respect it. Part of what is driving them now is a sense that nature is going to finally exact some revenge. In other words, this panic is part of a strange revenge fantasy, where they are finally vindicated by biological reality. This sudden sense of moral purpose has made them immune to reason.

Another aspect to this general panic, unrelated to the virus itself, is a different type of revenge fantasy. Many people are cheering the collapse of the economy and civil life on the mistaken belief that what emerges from the rubble will have them at the top of the social hierarchy. This is a phenomenon shared across the political spectrum. It seems to be most popular with young people unhappy with the status quo and far too caught up in purge fantasies to be reached with facts and reason.

Probably the most salient aspect to this panic is the role of women. As has been noted too many times to count, the West is now a gynocracy. It is not a matriarchy, as women have stopped bearing children and stopped caring about children. Look around and you see childless women in positions of authority all over the West. In fact, these are women who reached their status by rejecting every aspect of womanhood. The West is now a world run by middle-aged childless women.
Anyone who has been around women in a crisis has observed a strange phenomenon among childless adult females. Some switch gets flipped in a crisis where their protective instincts get misdirected at the adults in the room. This part of their nature was never allowed to mature in the raising of children, so it comes bursting forth in an incoherent desire to help when their help is not needed. They become like mother ducks loudly herding the brood to safety.

For a society run by such women, every crisis is met with demands that everyone shelter in place. Notice how over the last few decades that public officials no longer call for volunteers or tell people to pitch in and work together. Such independent action violates the frightened female’s sense of duty to her brood. Instead, mild weather events now close the schools and force people to work from home. This virus scare is every middle-aged women’s Hunger Games moment.


Mass panics are a known phenomenon.
The general panic that took place in France between July 22 and August 6 1789 is known as The Great Fear. It was a period of rural unrest, driven by both a grain shortage and rumors of an aristocrats’ “famine plot” to starve the peasants. The exact reason for this panic is in dispute. Ergotism is a favorite reason for those with a certain sense of humor, but most historians consider it one of the primary causes of the French Revolution.


At some point, the bloom comes off this lock-down rose once people start to feel the real cost of listening to madmen. People will remember that the same folks who swore Boris and Natasha had used their mind control devise to install Trump in the White House are the many of the same people peddling this panic. Necessity will force a lot of people to stop going along with what they have suspected from the start is nothing more than a mass panic. Soon, this all comes to an end.

Like the Great Fear, the Great Madness will leave a mark, or at least it should leave a mark on our society. You never can be sure about these things, as the West seems to be unusually immune to learning from these events. Two centuries ago The Great Fear meant the end of the feudal order and eventually a revolution. It was not the sole cause of the revolution, maybe not the main cause. It was certainly an example of how the old order was no longer able to maintain order.

It is too soon to know what this panic means for us. Perhaps it further undermines the legitimacy of the system and the people that profit from it. Perhaps it sets off social changes that slowly transform our society in ways we have yet to imagine. Maybe the fever breaks and this event, like the Russian hoax, gets forgotten.

Given what most likely awaits on the other side of the lock-down, it is hard to imagine this great madness being forgotten. There’s always a price to be paid for following madmen.

Hi Bruce,

All the orders closed with profits except Gold, still open. and my current
EQUITY balanace is $164,000. I started on February 18th, with $50,000 deposit.

I phoned you and left the voice mail.
regards,

https://www.zerohedge.com/political/...ops+to+zero%29


Authored by Ben Garrison


A PLAN YOU CAN’T TRUST!

For the past decade, Bill gates has been warning us about an inevitable pandemic. Conditioning us. Getting us used to the idea.


https://zh-prod-1cc738ca-7d3b-4a72-b...s_pandemic.jpg


Last year, he even held a summit on the matter and ran computer simulations to predict outcomes. Why did a former computer nerd and mogul become so interested in vaccination and disease?

Possibly because he’s worth over $100 billion and thinks he owns the world. He also wants to make an impact on humanity. Getting rid of excess humanity, that is. Bill’s father was once the head of Planned Parenthood. He comes from a eugenics background. Gates frets about world population growth. Is it any wonder he pushes Monsanto’s GMO food as well as harmful vaccines?

Apparently Bill’s computer simulations discovered that people would easily fold under government pressure combined with an unseen enemy. Billions of people are under lockdown right now. Half the world is shut down. Gates must marvel at how easy it was to do it. Things are going according to plan. They can’t control us physically, but hecan control us mentally through fear drummed into our brains 24/7 by mass media.

The coronavirus is real, but we’ve had many waves of flu viruses throughout the years. Many thousands die each year from the flu. Our elderly and infirm are the hardest hit.

This time the deaths are being magnified by the Fear Porn Channels. Statistics are controlled and manipulated to produce panic and hysteria.
The Democrats failed with their Russia collusion lie. They failed with impeachment. They are all for this hysteria because they can blame it all on Trump.

https://zh-prod-1cc738ca-7d3b-4a72-b...0327034523.jpg

Trish Regan was just fired from Fox Business Network because she called out concerns that the Chinese coronavirus was just another attempt to impeach President Donald Trump.


That was too close to the truth for Fox. They fired her.

We now have social distancing to further divide the human race - as if we were all some sort of disease in need of eradication. The corrupt WHO and CDC have us controlled like puppets on strings. We obey without question. Citizens are not allowed to question medical ‘authorities’ without fearing censorship or ridicule. When the time comes for a mandatory vaccine, people will already have become conditioned to obey the medical ‘authorities,’ and it’s all going according to plan.

But some plans have a way of not working out as planned.

Never take your eyes off government in a crisis.

I got your message. I will call you on Monday.


Bruce

Do you know how to do the screenshot as yet ?