Category: Market News

Courtesy of TMIN

Pessimism is spreading like wildfire on Wall Street, and this is particularly true among one very important group of investors. And considering how much money they have, it may be wise to listen to what they are telling us. According to a very alarming survey that was recently conducted by UBS Wealth Management, most wealthy investors now believe that there will be a “significant” stock market decline before the end of next year. The following comes from Yahoo Finance…

Wealthy people around the globe are hunkering down for a potentially turbulent 2020, according to UBS Global Wealth Management.

A majority of rich investors expect a significant drop in markets before the end of next year, and 25% of their average assets are currently in cash, according to a survey of more than 3,400 global respondents. The U.S.-China trade conflict is their top geopolitical concern, while the upcoming American presidential election is seen as another significant threat to portfolios.

Of course this could ultimately become something of a self-fulfilling prophecy if enough wealthy investors pull their money out of stocks and start increasing their cash reserves instead. Nobody wants to be the last one out of the barn, and it isn’t going to take too much of a spark to set off a full-blown panic. Perhaps the most troubling number from the entire survey is the fact that almost 80 percent of the wealthy investors that UBS surveyed believe that “volatility is likely to increase”…

Nearly four-fifths of respondents say volatility is likely to increase, and 55% think there will be a significant market sell-off before the end of 2020, according to the report which was conducted between August and October and polled those with at least $1 million in investable assets. Sixty percent are considering increasing their cash levels further, while 62% plan to increase diversification across asset classes.

During volatile times for the market, stocks tend to go down.

And during extremely volatile times, stocks tend to go down very rapidly.

Could it be possible that many of these wealthy investors have gotten wind of some things that the general public doesn’t know about yet?

Of course the truth is that anyone with half a brain can see that stock valuations are ridiculously bloated right now and that a crash is inevitable at some point.

And as I noted yesterday, corporate insiders are currently selling off stocks at the fastest pace in about two decades.

But why is there suddenly so much concern about 2020?

A different survey of business executives that was recently conducted found that 62 percent of them believe that “a recession will happen within the next 18 months”…

A majority of respondents – 62% – believe a recession will happen within the next 18 months. Private companies are particularly worried that a recession lurks in the near term, with 39% anticipating a recession in the next 12 months. This compares with 33% of public company respondents who felt the same way. About one-quarter – 23% – of respondents do not expect a recession within the next two years.

62 percent is a very solid majority, and without a doubt we are starting to see businesses pull back on investment in a major way.

In fact, according to Axios business investment in the United States has now dropped for six months in a row…

• Business investment has fallen for six months straight and declined by 3% in the third quarter, the largest drop since 2015.
• The retrenchment by businesses helped turn Wednesday’s U.S. workforce productivity report — a key economic metric that compares goods-and-services output to the number of labor hours worked — negative for the first time in four years.

I know that I bombard my readers with numbers like this on an almost daily basis, but I cannot stress enough how ominous the economic outlook is at this point.

And it isn’t just the U.S. that we need to be concerned about. Two other surveys that measure the business outlook for the entire globe just fell to their lowest levels in a decade…

The IHS Markit global business outlook—which surveys 12,000 companies three times a year—fell to the worst level since 2009, when data was first collected.

The Ifo world economic outlook, which surveys 1,230 people in 117 countries, fell in the fourth quarter to the worst level since the second quarter of 2009.

Markit’s poll found optimism for activity, employment and profits in the year ahead were all at the lowest level since the financial crisis. Markit also reported a decline in planned investment spending, with inflation expectations at a three-year low.

It is really happening.

The global economy really is heading into a major downturn.

And once this crisis really gets rolling, it is going to be exceedingly painful.

All across America, big companies are already starting to go under at a pace that is absolutely frightening. For instance, on Tuesday one of the biggest dairy companies in the entire country filed for bankruptcy…

Dairy giant Dean Foods filed for Chapter 11 bankruptcy protection as declining milk sales take a toll on the industry.

Dean Foods – whose more than 50 brands include Dean’s, Land O’ Lakes and Country Fresh – said it intends to continue operating.

The company said it “is engaged in advanced discussions” for a sale to Dairy Farmers of America, a national milk cooperative representing farmers, producers and brands such as Borden cheese and Kemps Dairy.

I have quite a few relatives in Minnesota, and I have always had a soft spot for Land O’Lakes butter. So it definitely saddened me to hear that this was happening.

But a lot more major casualties are coming.

Of course the economic optimists will continue to insist that we are just experiencing a few bumps on a path that leads to a wonderful new era of American prosperity. They will continue to tell us of a great “financial harvest” that is about to happen even when things are falling apart all around us.

You can believe them if you want, but most wealthy investors and most business owners believe that hard times are dead ahead.

I have never seen so much pessimism about a coming year as I am seeing about 2020 right now.

There is a growing national consensus that it is going to be a very chaotic year, and I would recommend using what little time you have left to get prepared for it.

About the Author: I am a voice crying out for change in a society that generally seems content to stay asleep. My name is Michael Snyder and I am the publisher of The Economic Collapse Blog, End Of The American Dream and The Most Important News, and the articles that I publish on those sites are republished on dozens of other prominent websites all over the globe. I have written four books that are available on Amazon.com including The Beginning Of The End, Get Prepared Now, and Living A Life That Really Matters. (#CommissionsEarned) By purchasing those books you help to support my work. I always freely and happily allow others to republish my articles on their own websites, but due to government regulations I need those that republish my articles to include this “About the Author” section with each article. In order to comply with those government regulations, I need to tell you that the controversial opinions in this article are mine alone and do not necessarily reflect the views of the websites where my work is republished. This article may contain opinions on political matters, but it is not intended to promote the candidacy of any particular political candidate. The material contained in this article is for general information purposes only, and readers should consult licensed professionals before making any legal, business, financial or health decisions. Those responding to this article by making comments are solely responsible for their viewpoints, and those viewpoints do not necessarily represent the viewpoints of Michael Snyder or the operators of the websites where my work is republished. I encourage you to follow me on social media on Facebook and Twitter, and any way that you can share these articles with others is a great help.

For the hard-asset enthusiast, the gold-silver ratio is common parlance. For the average investor, it represents an arcane metric that is anything but well-known. The fact is that a substantial profit potential exists in some established strategies that rely on this ratio. The gold-silver ratio represents the number of ounces of silver it takes to buy a single ounce of gold. Here’s how investors benefit from this ratio.

KEY TAKEAWAYS

• Investors use the gold-silver ratio to determine the relative value of silver to gold.
• Investors who anticipate where the ratio is going to move can make a profit even if the price of the two metals fall or rise.
• The gold-silver ratio used to be set by governments for monetary stability, but now fluctuates.
• Alternatives to trading the gold-silver ratio include futures, ETFs, options, pool accounts, and bullion.

What Is the Gold-Silver Ratio?

The gold-silver ratio refers to the ratio investors use to determine the relative value of silver to gold. Put simply, it is the quantity of silver in ounces needed to buy a single ounce of gold. Traders can use it to diversify the amount of precious metal they hold in their portfolio.

Here’s how it works. When gold trades at $500 per ounce and silver at $5, traders refer to a gold-silver ratio of 100:1. Similarly, if the price of gold is $1,000 per ounce and silver is trading at $20, the ratio is 50:1. Today, the ratio floats and can swing wildly. That’s because gold and silver are valued daily by market forces, but this has not always been the case. The ratio has been permanently set at different times in history and in different places, by governments seeking monetary stability.

Gold-Silver Ratio History

The gold-silver ratio has fluctuated in modern times and never remains the same. That’s mainly due to the fact that the prices of these precious metals experiences wild swings on a regular, daily basis. But before the 20th century, governments set the ratio as part of their monetary stability policies.

Here’s a quick overview of the history of this ratio:

• 2007: For the year, the gold-silver ratio averaged 51.
• 1991: When silver hit record lows, the ratio peaked at 100.
• 1980: At the time of the last great surge in gold and silver, the ratio stood at 17.
• End of the 19^th Century: The nearly universal fixed ratio of 15 came to a close with the end of the bi-metallic era.
• Roman Empire: The ratio was set at 12.
• 323 BC: The ratio stood at 12.5 upon the death of Alexander the Great.

Importance of Gold-Silver Ratio

Despite not having a fixed ratio, the gold-silver ratio is still a popular tool for precious metals traders. They can, and still do, use it to hedge their bets in both metals—taking a long position in one, while keeping a short position in the other metal. So when the ratio is higher, and investors believe it will drop along with the price of gold compared to silver, they may decide to buy silver and take a short position in the same amount of gold.

So why is this ratio so important for investors and traders? If they can anticipate where the ratio is going to move, investors can make a profit even if the price of the two metals fall or rise.

Investors can make a profit even if the price of the two metals fall or rise by anticipating where the ratio will move.

How to Trade the Gold-Silver Ratio

Trading the gold-silver ratio is an activity primarily undertaken by hard-asset enthusiasts often called gold bugs. Why? Because the trade is predicated on accumulating greater quantities of metal rather than increasing dollar-value profits. Sound confusing? Let’s look at an example.

The essence of trading the gold-silver ratio is to switch holdings when the ratio swings to historically determined extremes. So:

1. When a trader possesses one ounce of gold and the ratio rises to an unprecedented 100, the trader would sell their single gold ounce for 100 ounces of silver.
2. When the ratio then contracted to an opposite historical extreme of 50, for example, the trader would then sell his 100 ounces for two ounces of gold.
3. In this manner, the trader continues to accumulate quantities of metal seeking extreme ratio numbers to trade and maximize holdings.

Note that no dollar value is considered when making the trade. That’s because the relative value of the metal is considered unimportant.

For those worried about devaluation, deflation, currency replacement, and even war, the strategy makes sense. Precious metals have a proven record of maintaining their value in the face of any contingency that might threaten the worth of a nation’s fiat currency.

Drawbacks of the Trade

The difficulty with the trade is correctly identifying the extreme relative valuations between the metals. If the ratio hits 100 and an investor sells gold for silver, then the ratio continues to expand, hovering for the next five years between 120 and 150. The investor is stuck. A new trading precedent has apparently been set, and to trade back into gold during that period would mean a contraction in the investor’s metal holdings.

In this case, the investor could continue to add to their silver holdings and wait for a contraction in the ratio, but nothing is certain. This is the essential risk for those trading the ratio. This example emphasizes the need to successfully monitor ratio changes over the short- and mid-term to catch the more likely extremes as they emerge.

Gold-Silver Ratio Trading Alternatives

There are a number of ways to execute a gold-silver ratio trading strategy, each of which has its own risks and rewards.

Futures Investing

This involves the simple purchase of either gold or silver contracts at each trading juncture. The advantages and disadvantages of this strategy are the same—leverage. That is, futures trading is a risky proposition for those who are uninitiated. An investor can play futures on margin, but that margin can also bankrupt the investor.

Exchange-Traded Funds (ETFs)

ETFs offer a simpler means of trading the gold-silver ratio. Again, the simple purchase of the appropriate ETF—gold or silver—at trading turns will suffice to execute the strategy. Some investors prefer not to commit to an all or nothing gold-silver trade, keeping open positions in both ETFs and adding to them proportionally. As the ratio rises, they buy silver. As it falls, they buy gold. This keeps the investor from having to speculate on whether extreme ratio levels have actually been reached.

Options Strategies

Options strategies abound for the interested investor, but the most interesting involves a sort of arbitrage. This requires the purchase of puts on gold and calls on silver when the ratio is high and the opposite when the ratio is low. The bet is that the spread will diminish with time in the high-ratio climate and increase in the low-ratio climate. A similar strategy can be applied to futures contracts also. Options permit the investor to put up less cash and still enjoy the benefits of leverage.

The risk here is that the time component of the option may erode any real gains made on the trade. Therefore, it is best to use long-dated options or LEAPS to offset this risk.

Pool Accounts

Pools are large, private holdings of metals that are sold in a variety of denominations to investors. The same strategies employed in ETF investing can be applied here. The advantage of pool accounts is that the actual metal can be attained whenever the investor desires. This is not the case with metal ETFs where certain very large minimums must be held in order to take physical delivery.

Gold and Silver Bullion and Coins

It is not recommended that this trade be executed with physical gold for a number of reasons. These range from liquidity and convenience to security. Just don’t do it.

The Bottom Line

There’s an entire world of investing permutations available to the gold-silver ratio trader. What’s most important is that the investor knows their own trading personality and risk profile. For the hard-asset investor concerned with the ongoing value of their nation’s fiat currency, the gold-silver ratio trade offers the security of knowing, at the very least, that they always possess the metal.

BY CAROLINE BANTON  Updated Oct 8, 2019

Courtesy of Investopedia

KEY POINTS

• The U.S. dollar has been the world’s major reserve currency for decades, but that status could come under threat as “very powerful countries” seek to undermine its importance, warned Anne Korin, from the Institute for the Analysis of Global Security.
• Korin says China, Russia and the European Union are some “major movers” behind this push.
• One of those reasons driving their shift away from the dollar is the prospect of being subject to U.S. jurisdiction if they transact in dollars.

The U.S. dollar has been the world’s major reserve currency for decades, but that status could come under threat as “very powerful countries” seek to undermine its importance, warned Anne Korin, from the Institute for the Analysis of Global Security.

“Major movers” such as China, Russia and the European Union have a strong “motivation to de-dollarize,” said Korin, co-director at the energy and security think tank, on Wednesday.

“We don’t know what’s going to come next, but what we do know is that the current situation is unsustainable,” Korin said. “You have a growing club of countries — very powerful countries.”

To be sure, the dollar is seen as one of the safest investments in the world, and it rises during times of economic or political tumult.

But one factor curbing countries’ enthusiasm for the greenback is the prospect of being subject to U.S. jurisdiction when they transact in dollars. When the U.S. dollar is used or transactions are cleared through an American bank, entities are subject to U.S. jurisdiction — even if they have “nothing to do with the U.S.,” Korin told CNBC’s “Squawk Box.”

Korin cited Washington’s unilateral withdrawal from the Iran nuclear deal in 2018, which was followed by the restoration of sanctions on Tehran. That situation left European multinational companies vulnerable to punishment from Washington if they continued to do business with Iran.

“Europe wants to do business with Iran. It doesn’t want to be subject to U.S. law for doing business with Iran, right?” she said. “Nobody wants to be picked up at an airport for doing business with countries that the U.S. isn’t happy that they’re doing business with.”

As a result, countries have a “very, very strong motivation” to shift away from using the greenback, she said.

‘Petro-yuan’ may be an early warning

But if the dollar declines in influence, other currencies could fill the role traditionally played by the greenback — especially China’s yuan.

In recent years, China has tried to internationalize the use of its currency, the Chinese yuan. Such moves have included the introduction of yuan-denominated crude oil futures and reports that China is preparing to pay for imported crude in its own currency rather than the U.S. dollar.

Yuan-denominated oil futures — also referred to as “petro-yuan” — could serve as an early warning sign for the dollar’s waning dominance, Korin said.

“I think it’s a canary in the coalmine. Look, 90% of … oil is traded in dollars,” she said. “If you have a sort of a beginning to crumble away (at) the dominance of the dollar over oil trade, that’s a nudge in the direction of de-dollarization.”

However, she added that while the petro-yuan may be a “necessary” condition for the international abandonment of the dollar, it’s “not sufficient” to make it happen on its own.

Coutesy of CNBC by Eutance Huang

PUBLISHED WED, OCT 30 20197:27 PM EDT UPDATED THU, OCT 31 20191:35 AM EDT

With our national debt blowing past 23 trillion dollars nothing is as sobering as looking at future budgets. We should be worried. Central banks across the world claim the lack of inflation is the key force driving their QE policy and permitting it to continue, however, the moment inflation begins to take root much of their flexibility will be lost. This translates into governments being forced to pay higher interest rates on their debt. For years the argument that “This Time Is Different” has flourished but history shows that periods of rapid credit expansion always end the same way and that is in default. This also underlines the reality that any claims Washington makes about the budget deficit being under control is a total lie.

America is not alone in spending far more than it takes in and running a deficit. This does not make it right or mean that it is sustainable. Much of our so-called economic growth is the result of government spending feeding into the GDP. This has created a false economic script and like a Ponzi scheme, it has a deep relationship to fraud.

Global debt has surged since 2008, to levels that should frighten any sane investor because debt has always had consequences. Much of the massive debt load hanging above our heads in 2008 has not gone away it has merely been transferred to the public sector where those in charge of such things feel it is more benign. A series of off-book and backdoor transactions by those in charge has transferred the burden of loss from the banks onto the shoulders of the people, however, shifting the liability from one sector to another does not alleviate the problem.

When the 2018 financial year budget was first  unveiled it was projected to be $440 billion. An under-reported and unnoticed later report painted a far bleaker picture. The report titled the “Mid-Session Review”

2019_AmericanBudget_Mid-SessionReview

  forecast the deficit much higher than originally predicted. The newer report predicted the deficit would come in at $890 billion which is more than double what they predicted in March of 2017.

Such a miss would bring up the question of whether the discrepancy in the 2018 budget is an outlier or a sign of incompetence. This is especially troubling because what was projected as a total budget deficit of $526 billion for 2019 Fiscal Year has now been revised to a staggering $1.085 trillion. Not only should the sheer size of these numbers trouble us but we should remember that until recently some Washington optimists were forecasting that deficits would begin to decline in 2020 and that we would even have a small surplus of 16 billion in 2026. The updated revisions have washed away this glimmer of hope and replaced it with more trillion-dollar deficits going forward.

Interestingly, the summery that begins on page one of the Mid-Session Review comes across as a promotional piece using terms like MAGAnomicics that praise and tout the Trump administration for its vision and great work. This is a time when it would be wise to remember numbers don’t lie but the people using them do. This report is an example of how they re-frame a colossal train wreck into something more palatable. The report even goes so far as to assure us that the deficit will fall to 1.4 percent of the GDP in 2028, from its current 4.4 percent.As a result of the American economy having survived with little effect what was years ago described as a financial cliff we have become emboldened and now enjoy a false sense of security. Today instead of dire warning we hear news from Washington and the media how the stock market continues to push into new territory and all is well.

The chart to the right predicted that by 2019 the national debt would top 12 trillion dollars, not the current 23 trillion. Projections made by the government or any group predicting budgets based on events that may or may not happen at some future date are simply predictions and not fact. This means that such numbers are totally unreliable. The ugly truth many people ignore is that starting last year entitlements became the driving force that will carry the deficit higher and higher into nosebleed territory. Even though we have seen deficits reach unprecedented levels the deficits in our future will be dramatically worse.

It isvery disturbing that so many people have forgotten or never taken the time to learn recent financial history. By recent, I’m referring to the last fifty to one hundred years. The path that Fed Chairman Paul Volcker set right decades ago has again become unsustainable and many people will be shocked when this reality hits. Do not underestimate the value of insight gained from decades of economic perspective. It tells us the economy of today is far different from the way things have always been.

Back in September of 2012, I wrote an article reflecting on how the economy of today had been greatly shaped by the actions that took place starting around 1979. Interest rates, inflation, and debt do matter and are more significant than most people realize. Rewarding savers and placing a value on the allocation of financial assets is important. It should be noted that many Americans living today were not even born or too young to appreciate the historical importance and ramifications of the events that took place back then. The impact of higher interest rates had a massive positive impact on corralling the growth of both credit and debt acting as a crucial reset to the economy for decades to come. Below is a copy of that article.

A Time For Action, 1980?

In his book “A Time For Action” written in 1980 William Simon, a former Secretary of the Treasury tells how he was “frightened and angry”.  In short, he sounded the trumpet about how he saw the country was heading down the wrong path. William Simon (1927 – 2000) was a businessman and a philanthropist. He became the Secretary of the Treasury on May 8, 1974, during the Nixon administration and was reappointed by President Ford and served until 1977.

I recently picked up a copy of the book that I had read decades ago and while re-reading it I reflected on and tried to evaluate the events that brought us to today. As often the future is unpredictable, looking back, it is hard to imagine how we have made it this long without finding long-term solutions and addressing the concerns that Simon wrote about so many years ago. Back then it was about billions of dollars of debt, today it is about trillions of dollars. It appears that something has gone very wrong.

Do Not Underestimate The Importance Of The Reset By Paul Volcker In 1980

By the end of the 70s inflation started to soar. Only by taking interest rates to nosebleed levels was then Fed Chairman Paul Volcker able to bring inflation back under control. Paul Volcker, a Democrat was appointed as Federal Reserve chairmanby President Carter and reappointed by President Reagan. Volcker is widely credited with ending the stagflation crisis where inflation peaked at 13.5% in 1981. He did this by raising the fed fund rate which averaged 11.2% in 1979 to 20% in June of 1981.  This caused the prime rate to hit 21.5% and slammed the economy into a brick wall. This also affected and shaped the level of interest rates for decades

Rates Today Are Ready To Fall Off The Chart!

This action and the increased interest rates in following years is credited by many to have caused  Congress and the President to eventually balance the budget and bring back some sense of fiscal integrity and price stability to America. As the debt from the Vietnam war and soaring oil prices became institutionalized we moved on. Interest rates slowly dropped and the budget came under control. In recent years spending has again started to grow and at the same time taxes have been cut. This has slowly occurred over years and been ingrained in the system.

With our debt at 23 trillion and growing the path has again become unsustainable and many people will be shocked when the reality hits. As our debt climbs some Americans feel just as frightened and angry as Simon did so many years ago. America has kicked the can down the road, failing time and time again to face the tough decisions. Part of the problem is the amount of debt has grown so large that we can no longer imagine or put a face on it. The day of reckoning may soon be upon us, how it arrives is the question. Many of us see it coming, but the one thing we can bank on is that when it arrives many will be caught totally off guard.

Authored by Bruce Wilds via Advancing Time blog,