Utmost Crazy

Doug Nolan

The Shanghai Composite surged 7.3% this week, increasing y-t-d gains to 10.9%.

The CSI 300 rose 7.6%, with 2020 gains of 16.0%.

China’s growth-oriented ChiNext Index’s 12.8% surge boosted year-to-date gains to 54.5%.

Copper jumped 7.1% this week.

Aluminum rose 4.6%, Nickel 4.0%, Zinc 8.3%, Silver 4.2%, Lead 4.2%, and Palladium 3.5%.

China’s renminbi advanced 0.9% this week to a four-month high versus the less-than-king dollar.

July 9 – Bloomberg: “Like millions of amateur investors across China, Min Hang has become infatuated with the country’s surging stock market. ‘There’s no way I can lose,’ said the 36-year-old, who works at a technology startup… ‘Right now, I’m feeling invincible.’ Five years after China’s last big equity boom ended in tears, signs of euphoria among the nation’s investing masses are popping up everywhere. Turnover has soared, margin debt has risen at the fastest pace since 2015 and online trading platforms have struggled to keep up. Over the past eight days alone, Chinese stocks have added more than $1 trillion of value -- far outpacing gains in every other market worldwide.”

China’s Total Aggregate Financing (TAF) expanded a much stronger-than-expected $490 billion in June, up from May’s $455 billion expansion and 30% above growth from June 2019. TAF surged a remarkable $2.976 TN during the first-half, 43% ahead of comparable 2019, and 80% ahead of first-half 2018.

It’s not easy to place China’s ongoing historic Credit expansion in context.

While not a perfect comparison, U.S. Total Non-Financial Debt (NFD) expanded a record $3.3 TN over the four quarters ended March 31st. In booming 2007, U.S. NFD expanded about $2.5 TN. Chinese Total Aggregate Financing has expanded almost $3.0 TN in six months.

In the face of economic contraction, TAF increased a blistering $4.39 TN, or 12.8%, over the past year. For perspective, y-o-y growth began 2020 at 10.7% - and is now expanding at the strongest pace since February 2018. Beijing is targeting TAF growth of $4.3 TN (30 TN yuan) for 2020, about 25% ahead of record 2019 growth (and up 45% from 2018 growth).

China’s New Bank Loans expanded $259 billion in June, up from May’s $212 billion and 9% ahead of June 2019. At $1.727 TN, year-to-date New Loans are running 25% ahead of comparable 2019. Consumer lending has bounced back, likely fueled by some pent-up demand for mortgage Credit.

At $140 billion, Consumer Loan growth was up from May’s $101 billion and 29% above June 2019 growth. The $509 billion year-to-date expansion in Consumer Loans was 4% below comparable 2019. Yet Consumer Loans were up 14% y-o-y; 33% in two years; 59% in three; and 135% over five years.

China’s M2 money supply expanded $496 billion during June to $30.5 TN, an almost 20% annualized pace. Over six months, M2 surged $2.120 TN, or 14.7% annualized. At 11.1%, year-over-year M2 growth is running at the strongest pace since January 2017. M2 expanded 20.6% over two years; 30.9% over three; and 60.1% in five years, in one of history’s spectacular monetary expansions.

For perspective, U.S. M2 rose a record $950 billion during 2019. China’s M2 expansion more than doubled this amount in only six months.

And with U.S. M2 up over $3 TN, combined Chinese and U.S. first-half “money” supply growth approached an incredible $5.2 TN.

July 7 – Wall Street Journal (Jacky Wong): “Analysts fret that U.S. markets have become irrational thanks to so-called ‘Robinhood’ retail traders with plenty of time on their hands. But American markets have nothing on China. Chinese stock markets have been on a tear lately: the CSI 300 index, a gauge of the largest companies listed in Shanghai and Shenzhen, has gained 14% just in the past week… What really seems to have gotten Chinese investors excited however, is state media’s sudden switch to a bullish tone. A Monday front-page editorial in the state-owned China Securities Journal said it’s now important to foster a ‘healthy bull market’—in part because of more ‘complicated’ global trade and economic relations.”

It is a central tenet of Credit Bubble analysis that things turn “Crazy” near the end of cycles.

And with the thesis that we’re in the concluding (“terminal”) phase of a multi-decade, super-cycle global Bubble, there’s been every reason to foresee Utmost Craziness.

In the most simplified terms, Bubbles inherently gather momentum and inflate to dangerous extremes. Mounting fragilities ensure policymakers employ the increasingly outrageous measures demanded to hold collapse at bay.

Craziness is cultivated by a confluence of late-cycle intense monetary inflation (i.e. QE and speculative leverage) and deeply ingrained speculative impulses.

The bigger the Bubble, the more intense the speculative fervor; the greater the attendant government intervention; and the more convinced market participants become that officials won’t allow a bust. Throw Trillions at systems already acutely prone to Bubble excess and you’re courting disaster (that’s you, Washington and Beijing).

The global nature of Bubble Dynamics makes this period unique. And while Europe, Japan and EM are important contributors, the global Bubble is foremost underpinned by historic U.S. and Chinese monetary inflation. That these two countries are increasingly bitter rivals adds unique challenges to Bubble analysis.

The irony of it all: China’s communist party readily promoting the stock market. Do they have much choice?

The Federal Reserve over three decades shifted away from the traditional model of affecting bank lending – elevating the financial markets to the primary policy stimulus mechanism.

Instead of measured interest-rate reductions, on the margin, stimulating bank lending, the Fed has resorted to Trillions of securities purchases (QE) and zero rates to directly trigger market speculation and asset inflation.

This model proved an absolute boon to U.S. markets, the economic expansion, the dollar and broader U.S. global influence. To compete, Beijing knew what it had to do.

The Nasdaq100 is up 23%, lagging China’s ChiNext Index’s 54% 2020 gain.

These competing superpowers are increasingly in a hand-to-hand combat for technological supremacy and global dominance. It is also apparent that these two economies will be “decoupling” – in an increasingly unsettled, bi-polar world. The relationship has of late commenced an ominous free-fall.

They do, however, share some commonality. The U.S. and China are both targeting securities markets to reflate their faltering Bubbles.

Typically, the primary risks associated with exacerbating Bubble excess would be domestic-focused – i.e. increasingly unstable markets, economic maladjustment/fragility, and heightened social and political instability.

Yet today’s backdrop adds a critical geopolitical component. Both face the momentous consequences that collapsing markets would entail for their competing global interests. Stakes are incredibly high – and policymakers respond accordingly.

Chinese equities have been booming, and sentiment has turned bullish on China’s economic recovery. I’m unimpressed. Considering the unprecedented monetary stimulus along with pent-up demand, recovery is thus far unremarkable.

Especially with surging COVID cases globally, the struggle for China’s export sector will be ongoing. And I question the wisdom of further stoking China’s historic apartment Bubble. I’ll be surprised if the Chinese consumer doesn’t remain at least somewhat cautious for months to come. But if Beijing is hellbent on spurring a recovery, I wouldn’t bet against them in the short-term.

A combined $5.0 TN of new (U.S. and Chinese) “money” supply ensures epic distortions. For one, “money” has flooded into global securities markets. This has fomented an extraordinary reversal of short positions and hedges across global risk markets – equities, corporate Credit, commodities and currencies. Financial conditions have loosened markedly, with risk markets in the throes of a historic short squeeze.

July 8 – Financial Times (Laurence Fletcher): “Lansdowne Partners’ decision this week to shut its flagship hedge fund has dealt a big blow to a key strategy — equity long/short — that is already struggling to find losers in stimulus-soaked markets. The move by the… fund… marks a major retreat by an industry pioneer. It also highlights how tough life has become in the years since the financial crisis for managers trying to pick out overpriced stocks during a seemingly unstoppable bull run. ‘It is much harder to see opportunities in the short book, either in terms of generating specific value or as a hedging offset to the long investments,’ wrote Peter Davies and Jonathon Regis, managers of the Lansdowne Developed Markets fund… Lansdowne’s problems reflect the wider challenges facing the $830bn-in-assets equity long/short hedge fund sector.”

Tesla was up another 28% this week, boosting one-month gains to 51% and its year-to-date advance to 269%. With market capitalization of $287 billion, Tesla is the poster child for stock prices divorced from underlying fundamentals.

Yet this dynamic is anything but limited to big Nasdaq stocks. At this point, panic buying and short squeeze dynamics have destabilized markets - from U.S. and Chinese equities to global stocks, corporate bonds and commodities. Did Beijing this week willfully administer a deathblow to shorts in Chinese equities and the renminbi – a squeeze that quickly broadened to the industrial commodities and global equities, more generally?

It’s not unusual for short squeezes to unfold even in the face of deteriorating fundamentals.

There is often a final “blow-off” fueled by a confluence of speculative excess, panicked short covering, and derivative-related trading. It’s a key facet of late-cycle Craziness.

That sick feeling in my stomach returned this week: this is out of control. COVID is out of control.

Market speculation is out of control. And it’s this combination that recalls the unease I was experiencing back in February, as a speculative marketplace was content to completely disregard mounting pandemic risk.

It’s difficult to fathom the almost 400,000 new U.S. COVID infections since last Friday’s CBB.

Hopes from just a few weeks ago of a return to a semblance of normalcy have been crushed.

The specter of overflowing ICUs and hospital wards has returned – but instead of NYC it will unfold in cities and towns across the entire southern U.S. And it looks like a replay of PPE and COVID test shortages.

And what the future holds appears more unsettled today than even in March and April. Back then we believed there was a curve to flatten. With shared sacrifice, we’d overcome the pandemic. It was not that many weeks ago when the estimate for COVID-related deaths was revised sharply lower to 60,000. Our nation has lost 134,000.

A harsh reality has begun to set in. At this point, no one – or any model – has a clue as to how many will perish – or even the general trajectory of this pandemic. The relatively low daily death rate was early in the week still a talking point for the dismissive.

The daily death count surpassed 800 by the end of the week – on the way to 1,000, 2,000 or even higher?

Will the most populated states in the country be forced to dramatically tighten restrictions?

Texas, Georgia, California and others are contemplating a return to “lockdown” conditions.

Does this widely dispersed outbreak portend a major nationwide spike in infections – in cities, towns and rural communities? Are we prepared? Have we procured sufficient supplies?

Stocks are surging, so the economic recovery must not be at risk, right? Yet it’s difficult for me to see how the economy – at home and abroad – isn’t facing serious chronic problems. We’re only weeks away from the start of a new school year – and there’s little clarity. College football games are being cancelled and the entire season is slipping away. It’s simply difficult to comprehend what a mess we’ve made of things. Outrage is justified.

In Miami, apparently only 17% of new infections are generating follow-up contact tracing. Beyond the lack sufficient tracer personnel, many newly infected are simply refusing to cooperate with local authorities.

As a nation – from top leadership to us common citizens – we’ve got to quickly get our crap together and approach this crisis with more of a wartime mindset. Surging stock prices notwithstanding, there’s more than a small probability (10%, 20% - 50%?) of a quite problematic scenario.

Meanwhile, divisions, partisan infighting and a proliferation of nonsense are inflicting irreparable damage.

Zerohedge uses this photo of Putin with a mischievous grin enjoying his bucket of popcorn. I imagine Xi and Putin chatting affably on a secure line in utter amazement – giggling.

US heads for fiscal cliff as stimulus fades

Economists worry that political stand-off over extension of aid could damage recovery as pandemic rages

James Politi in Washington

A closed store front in New York on July 6
US economists have criticised Washington’s failure to renew the jobless benefits © JUSTIN LANE/EPA-EFE/Shutterstock

Peter Griesar, the founder of Brazos Tacos in downtown Charlottesville, Virginia, was so disturbed this week that the US might rein in its fiscal stimulus as the pandemic continued to rage that he fired off a tweet from his restaurant’s account.

The $600 per week emergency jobless benefits helping millions of Americans — and some 10 to 15 of his former employees — to stay financially solvent were not a “disincentive to work”, he wrote.

The payments, which are due to expire this month if Congress does not act, were needed because of “demand suppressed” by coronavirus.

“We don’t see that changing for the rest of the year. Extend it,” he wrote, tagging Virginia’s two Democratic senators and the area’s Republican member of the House of Representatives.

Mr Griesar’s lament is echoed by many US economists, who decry Washington’s failure to renew the jobless benefits. These payments have been pumping about $18bn per week into the world’s largest economy since the crisis began.

According to a study by economists at the University of Chicago and the National Bureau of Economic Research released this week, the unemployment support has even exceeded prior earnings for 68 per cent of workers, and doubled them for the lowest-wage workers.

While Democrats have pushed to maintain them until the economy improves, the White House and Congressional Republicans are resisting on the grounds that they discourage employment.

The stand-off risks creating a dangerous economic cliff unless it is soon resolved.

Column chart of Weekly disbursements, $bn showing US government's pandemic relief levels off

Ernie Tedeschi, an economist at Evercore ISI, said jobs growth could “slow materially over the summer”, to the tune of 500,000 or 1m fewer positions between August and October, if the support is withdrawn.

“That wouldn’t flip the US from positive to negative growth if the recent pace of performance kept up, but it would be a big drag on activity in the third quarter in any event. And if Covid cases and reclosures continue to rise, unemployment [benefit] expiration would make a bad situation even worse,” he said.

The pain from the potential end of the unemployment benefits will be compounded by the disappearance of other elements of the $3tn in stimulus that was rapidly approved in March when the coronavirus crisis first hit the US.

The impact of $1,200 cheques sent by the US Treasury to individuals earning less than $75,000 per year early in the crisis has dwindled. In addition, small businesses that received forgivable loans as part of a $520bn aid programme from the Trump administration will have spent a significant chunk of the money.

Meanwhile, states and local governments that never received much support in the first round of stimulus, and are starting their fiscal years with gaping budget shortfalls, are pondering their own austerity measures, including temporary lay-offs or dismissals of public workers and tax rises.

Jay Shambaugh, an economics professor at George Washington University in the US capital, said that the massive stimulus enacted by the US in response to the crisis had sustained household incomes — and helped preserve spending — in recent months, but all that was now in peril.“July will be lower than June [in terms of personal income] because we’ll be totally done with the direct cheques.

But then August is going to be much much lower, unless they do something else [on jobless benefits],” he said. “With rising infections and caseloads out there, and reopening scaling back in parts of the country, it seems that there’s a very good case to be made that the economy needs continued support,” said Mr Shambaugh.

Bar chart of Replacement rate by weekly income level showing Percentage of income replaced by Cares Act

After data on Thursday showed that 1.3m Americans were still applying for the first time for jobless benefits last week, Chris Rupkey, chief financial economist at MUFG, warned: “Washington better get its act together and inject some more fiscal stimulus monies into the economy or business and economic activity could sink back closer to those crushing record lows made back in April.”

A compromise could still be in reach on Capitol Hill. But while Democrats are pushing for a wide-ranging package worth an additional $3tn, White House officials and congressional Republicans have suggested a more modest amount, worth $1tn, that could struggle to meet all the needs.

The unemployment benefits may not end entirely but could be slashed, and some Republicans are suggesting that the income threshold for receiving a new round of stimulus cheques could be lowered to $40,000. “There’s a lot still to do and $1tn puts constraints on what’s possible,” said Mr Tedeschi.

Even senior Fed officials — who are normally reluctant to weigh in on decisions for Congress and the White House — have expressed concerns about waning fiscal stimulus. “When the relief was passed initially, there was a thought about how long this was going to last, and as more information has come in, there’s reason to suggest this is going to last longer than that,” said Raphael Bostic, president of the Atlanta Fed, in an interview with the Financial Times.

“It’s only natural, given that possibility, to start thinking about what the next relief package should look like.”

As well as hitting consumer spending, the withdrawal of fiscal stimulus could also make it harder for low and middle-income families struggling because of the pandemic to pay rent and mortgages, damaging the housing market.

The Trump administration has extended a moratorium on evictions and foreclosures introduced during the coronavirus crisis that was originally set to end last month, but only until the end of August. That is yet another economic cliff on the horizon.

Speaking to the FT, Mr Griesar of Brazos Tacos — whose business is generating about half of its pre-pandemic income from take-out orders only — worried about exactly this scenarios for some of the workers whose jobs he was forced to cut. “A lot of the people who work for me are young, and they live in houses with other people, who have also lost their jobs.

So there could be cascading effects across households, where enough people have lost income that it becomes hard for them to make rent,” he said. But his biggest disappointment is that the “amazing experiment” placing billions of dollars into the hands of people who “wouldn’t otherwise have it” was ending prematurely.

“We’re really lucky to have the parts of the economy that we still do in place. A lot of that was because of this [stimulus] money,” Mr Griesar said. Winding it down did not benefit anyone, he added.

“It doesn’t help Trump to destroy the economy right before an election, it doesn’t help the Democrats either, I don’t think, because why would you want that to happen?

There’s no upside”.

US capitalism has been shattered

The coronavirus response is paving a path to government control of the economy

Henry Kaufman

Theodore Roosevelt. Anti-monopoly trustbusting thrived under his presidency
Theodore Roosevelt: anti-monopoly trustbusting thrived under his presidency © Hulton Archive/Getty

American capitalism is rapidly disappearing.

Its demise has been under way for some time and the economic devastation wrought by the Covid-19 pandemic is the latest blow to our political economy.

Adam Smith remains a useful guide to the hallmarks of capitalism. In 1776’s The Wealth of Nations, he argued that humans innately strive for material progress and the best way to get there is through unfettered competition, the division of labour and free trade. Smith wrote that the state should play a limited role in economic affairs.

For him, governments should be properly confined to national security, the rule of law — including the protection of private property — and the provision of a few public goods such as education. He also cautioned against sharp class divisions that might idle rich people and exploit workers.

“No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable,” he warned. Smith hoped that whole societies could be enriched through the striving of individual members.

This kind of capitalism has been shattered. Free trade is being dismantled as treaties are being abrogated. The free movement of labour is constrained by walls and edicts. Competition enforcement in business and finance is lagging and tardy. The anti-monopoly trustbusting that thrived under US president Theodore Roosevelt is long gone. Concentration of non-financial corporations has increased sharply. Many businesses now enjoy a global reach, allowing them to post non-competitive prices.

In financial markets, concentration is even more glaring. Today, a shrinking number of financial conglomerates hold a tight grip on investment management and the underwriting and trading of securities. The enormous underlying conflicts of interest are tolerated by the authorities. In truly competitive economies, those who do well should prosper while those who offer inferior goods and services should fail.

Increasingly, that doesn’t happen. Rather, capitalism is being rapidly replaced by statism — a form of political economy in which the state exercises substantial centralised control over social and economic affairs.In the US, the federal government and the Federal Reserve sit atop statism.

The government has a vast capacity to tax, borrow and reallocate funds. Federal debt owed to the public currently stands at $20tn and much more can be borrowed. For some time to come, the US dollar will remain the key reserve currency, and overseas investors continue to prefer US government bonds over most other securities.

In contrast, the creditworthiness of state and local governments has come under acute pressure because of the coronavirus pandemic, forcing many of them to seek federal help. States and localities will be financially beholden to the federal government, weakening their independence while strengthening the central authority. That is not what the US system of federalism envisions.

Historically, the Fed has been viewed as somewhat independent from immediate political interests. But the central bank’s response to the onset of the pandemic-related recession shows that its quasi-independence is quickly evaporating, contributing to the emerging statism.

The Fed was helpfully supportive in previous crises. During the second world war, it stabilised yields on government securities.

In the 2008 financial crisis, it bailed out prominent financial institutions, engaged in quantitative easing, forced large banks to accept government capital and lowered interest rates sharply.

But the Fed’s response to the pandemic is far more open-ended. It is buying not only government bonds but also corporate bonds — including low-quality issues, mortgage obligations, municipal bonds and exchange traded funds.

The central bank also is working with the Treasury to get loans to small and medium-sized businesses. Its balance sheet has already swollen by an astonishing $3tn to more than $7tn since the start of this year.

And financial markets have come to expect the Fed to intervene in response to any sharp decline in equity prices.

Before the pandemic, the Fed had made considerable progress in reducing the size of its balance sheet.

But now we can expect an even more significant increase in the size of its intervention as long as there remains no clear resolution to the pandemic, such as a mass-produced vaccine.

Markets will probably remain quite skittish as well.

With the federal government and the Fed firmly joined at the hip, the transformation of capitalism into statism is gaining momentum, perhaps irreversibly.

This is a great departure not only from the vision of the US founders but also, I suspect, it is not the kind of economic system most Americans living today want to leave for future generations.

The writer, a former senior partner of Salomon Brothers, is president of Henry Kaufman & Co

Silver Could Be At The Very Beginning Of A Monster Move Higher

by: Austrolib


- Silver has been in a bear market for 9 years, but record deliveries are happening on the Comex and silver is dipping in and out of backwardation this month.

- Silver outperforms gold, but only at the tail end of bull markets, as in August 1979-January 1980, and August 2010-April 2011.

- Silver's 50WMA just moved above its 200WMA for the first time since 2003, when it started a 10x rally to the 2011 top.

- I believe the next 10x rally is starting now, but the top should come much quicker this time.

Silver is in backwardation.

Physical deliveries of silver this month, July 2020, are at all time records, and July isn't even half over yet. Something big is happening in silver, and it's best if gold bugs don't miss it by paying too much attention to gold.
Us precious metals guys, we know the gold numbers very well, but silver gets lost in the mix.

The silver rallies tend to be so fast, furious and short-lived that we tend to forget what actually happened, making it difficult to prepare for the next one.

How long has silver been in a bull market, using that hackneyed 20% off lows definition for bull markets? How long was the bear market?

The answer to the first question is actually less than 4 months.

The bull market in silver began on March 16, 2020. Technically speaking, since silver hit its peak of $49.82 on April 24, 2011, gold's volatile cousin has been in a nearly 9-year bear market.

Not without what turned out to be bullish head fakes in hindsight, but the lows of $11.64 were only hit in March.


Could this be another bullish head fake? Anything is possible in commodities - heck we just saw negative oil prices - but it would be a historic stretch to say this is another silver head fake.

In fact, about a month before oil hit negative $35, silver was hitting its own all-time record lows in gold terms at 131.41 ounces of silver per ounce of gold. See below.


Nothing close to this ratio has ever been seen before in all of human economic history, so unless gold is in a major bear market, silver's bear market is almost certainly over.

In fact, the 1980 gold:silver low at 15 was actually the standard set during most of the 19th century.

ChartData by YCharts

So what happens now?

Well, if history rhymes, I believe silver is at the very beginning of a historic rally that should take it to all time highs in the triple digits.

The rally should be fast and furious as were the previous two in 1980 and 2011, my guess taking about 2 years or less this time.

First let's look at the last two major silver rallies and how they unfolded, to give us a hint about how this next one could unfold.

April 1978 - January 1980

The 1978-1980 bull market in silver was like an approaching storm climaxed by a tornado.

Here's what it looked like, relative to gold, from beginning to end:

It is often said that silver magnifies the moves in gold about 2x.

That's true over the course of an entire bull market as you can see above, but it doesn't happen at an even pace.

We can divide this run into two parts.

Part one, 16 months from April 1978 to August 1979, when the two metals traded at pretty much an even pace.

Then, the 5 months from September 1979 to January 1980 when silver went ballistic.

Here's a zoom-in on the first 16 months so you can better see what happened.

For most of 1978 until October, gold actually outpaced silver by about 100%.

By February, silver overtook gold, and by the end of August, silver began to pull away.

Then for the next five months, silver went totally berserk.


October 2008 - April 2011

Something similar happened from the 2008 financial crisis bottom on precious metals on October 31, 2008 until the silver peak in April 2011.

Here's the full chart of that run.


From October 2008 until around August 2010, the two metals traded mostly evenly.

Silver outpaced gold on occasion, but corrected back down towards it repeatedly during that time.


Around the end of August 2010 though, silver began to pull away with complete abandon.


This is how silver tends to outperform gold.

The bulk of the outperformance happens at the end of a bull rally, not throughout.

Since gold bottomed in late 2015 though at $1,044, silver has not confirmed.

If March 16, 2020 was the bear market bottom in silver, then we may now be entering the initial stages of the real gold bull rally that should be led by silver.

Here's where we are now, counting March 16 as the equivalent of the post 2008 financial crisis precious metals lows on October 31, 2008:


It looks like silver may be already pulling away from gold.

If, during the next gold correction, silver doesn't fall hard, we may be much nearer the parabolic stages than we were in the last two rallies.

Technical Indicators Pointing to Something Big Brewing

I don't pay all that much attention to technical signals, most of the time at least.

But signals that happen once in a decade I do pay attention to.

First though, on the short-term daily chart, the 50 day moving average in silver just moved above the 200DMA.

This could be a nice sign for technical short-term traders who may have their algorithms pinging at them that something is happening in silver. See red circle at the right.

This by itself isn't much, and doesn't point to anything long term.

However, something much more significant is happening on the long-term chart.

From the above silver chart, we see the 50 week moving average (blue line) first fell below the 200WMA way back in the summer of 2013.

From that point until the end of the gold bear market in late 2015, the 50WMA acted as resistance for silver.

You can see that from 2013 until 2016 price just could not get above that blue line.

Then the new bull market in gold began, but this new bull market in gold was never confirmed by silver.

After the initial stages of the gold bull market from December 2015 to July 2016, silver indeed broke out but once it hit the 200WMA, that red line began acting as major resistance.

The final historic washout for silver was in March during the COVID-19 liquidity crunch, 

which we can count as the actual bear market bottom for a bear market that has lasted 9 years.

But here's what may be the really big deal: On the long-term chart above, you can also see that the 50WMA has just broken decisively above the 200WMA.

This, for the first time since…

October 2003. (Excluding a very brief dip and break back above in 2009 post financial crisis.)

From that point in 2003 over the next 7 and a half years, silver skyrocketed 10x, an order of magnitude.

That can, and I believe will, happen again, with the starting point being this month, July 2020.

But something else also happened in March, another historic record in silver.

Relative to the US M2 money supply, the price of silver is coming off all time lows also not seen since 2003.

If silver does nothing but stay where it is in money supply terms, it will still rise significantly.

Money supply is not going to stop rising any time soon, not with the Fed printing as much as it is.


Physical Demand Rising

This impending rally is being confirmed, I believe, by the physical markets. I don't believe the backwardation we saw in the silver market the morning of July 9, 2020 is a coincidence.

Deliveries from the Comex are also hitting records.

See the July Comex delivery report here for silver, screenshot below.

Keep in mind that July is only a third of the way done.

Here's the silver backwardation already happening, with timestamps.

Notice spot price is above the August contract.

This indicates high demand for physical delivery.


If silver could make a 10x run from 2003 to 2011, I believe it can make another 10x run from $11 to $110, but much faster this time, to keep pace with the expanding money supply.

If silver really is in a bull market, then it should go above $50, as that was the 1980 top as well, and approach the 15:1 gold to silver ratio that is closer to historic norms.

If we count by tops, silver has been in a bear market for 30 years now.

I believe silver is about to finally break out, in a big way, way past all time record highs in dollar terms.

What's Wrong With America?

"The Despair Is Smoldering in Society"

Millions of Americans have seen their wages stagnate for decades, even as the wealthiest have grown fantastically rich. Economists Angus Deaton and Anne Case believe the health-care system is partly to blame, and the coronavirus is highlighting the broader dangers American society is facing.

Interview Conducted by Benjamin Bidder und Michael Sauga

The college town of Princeton is located in New Jersey, which has been hit especially hard by the coronavirus. The Nobel laureate economist Angus Deaton, 74, and his wife Anne Case, 61, have thus spent a lot of time at home in recent months. Both are at particular risk from COVID-19. In spring, the couple published the book "Deaths of Despair and the Future of Capitalism." It traces the fall of the American working class, which has seen wages stagnate for decades. The two believe the country's desolate health-care system is partially to blame.

DER SPIEGEL: Ms. Case, Mr. Deaton, the whole world is wondering why the United States has been hit so hard by the coronavirus pandemic. Do you have an explanation?

Deaton: We're not epidemiologists, but the pandemic is once again revealing that the U.S. health care system is a mess. It was a mess before the pandemic, but the pandemic is really showing how problematic it is. More than 30 million people have lost their employment. And now, because insurance is tied to employment, there are millions of people without health insurance.

DER SPIEGEL: The U.S. has some of the best doctors on earth, an innovative pharmaceutical industry and world class hospitals with the best medical technology. Where is the problem?

Case: The U.S. is spending around 17 percent of GDP on health care, more than any other country in the world. But we have the lowest life expectancy of any rich country in the world. And the health-care industry is responsible for a lot of this.

DER SPIEGEL: You have even called the health-care industry a "parasite on the economy” and said it is "like a tribute to a foreign power." Isn't that a bit of an exaggeration?

Deaton: The man who first compared the health-care industry to a tapeworm was Warren Buffett, the famous investor. There are many ways of figuring out what the health-care industry ought to cost and what it delivers.

Take, for example, the comparison with Switzerland, the country with the second highest health care expenditures as a share of GDP: They spend 12 percent of GDP, but they live six years longer on average than Americans! If a fairy godmother were somehow to reduce the share spent on health care in America to the Swiss level, a lot of money would be available for other things.

It would free up a trillion dollars. That’s the "tribute” that we refer to, the waste. But we are paying it to ourselves, or to some of ourselves, not to a foreign power.

Case: We are not attacking the people in the industry. The doctors and nurses are doing a tremendous job, especially during this crisis. We are attacking a system that is no longer functional.

DER SPIEGEL: But it’s a very American system. It stresses personal responsibility.

Deaton: I don’t think so. It’s especially putting pressure on working-class Americans. A family policy last year cost $20,000 a year. This may be affordable for high paid workers, but not for those who earn less, say $30,000 a year.

So as rates kept getting larger and larger in recent years, corporations cut back on hiring low-wage workers. In short, the cost of health care and our system of financing it is a wrecking ball to the less-educated labor market, throwing people out of good jobs into much worse jobs in the outsourcing sector, or out of the labor force altogether.

Case: At the same time, federal and state governments pay for a large chunk of medical care for the elderly or for people without the means to pay for Medicaid. But that is putting great financial stress on the states, because every year, the cost of providing health care goes up.

There is less money left over to repave roads or to fund state universities. In the long run, one of the mechanisms by which working-class children could get a good college education is being pulled out from under them because tuitions are being raised.

DER SPIEGEL: You have argued that this is one reason why many workers without a bachelor's degree have left the labor market. What becomes of those people?

Deaton: Some of them live off government benefits. Some of them take early retirement or live off friends or relatives. Some move into a cheaper place. There are lots of ways of surviving.

DER SPIEGEL: They fall into poverty?

Case: Not necessarily. It’s more a disintegration of a way of life. One of the consequences is that, in those areas, there is a reduction of social integration. There are fewer marriages in the white working class, fewer people going to church, fewer people with stable home lives and a lessened sense of community. That puts these people at great risk.

DER SPIEGEL: And it contributes to those deaths of despair, as you have called them. What is behind this phenomenon?

Case: We were puzzled by the discovery that mortality rates are no longer sinking, but accelerating in the group of middle-aged whites with low education. They are dying from drug overdoses, alcoholic liver disease and suicide - all deaths by their own hand. And they have all risen dramatically since the early 1990s.

DER SPIEGEL: Why? What about the opioid epidemic?

Deaton: If despair due to the hollowing out of the white working class wasn't there, the drug epidemic would be much smaller. The despair is smoldering in society, and this created an opportunity for the pharmaceutical industry, an industry that is not appropriately regulated, which made the situation with opioids much worse. At the height of it, there were enough prescriptions for every American to have a month's supply. It was essentially legalized heroin.

DER SPIEGEL: What has caused this mass-despair in white, middle-class life?

Deaton: Look at the labor market, at wages. Life-time jobs and the meaning that comes from a life like that is very important. Roles for men and women are defined by it, as is their place in the community.

It's almost like Marx: Social conditions depend on the means of production. And these means of production are being brought down by globalization, by automation, by the incredible force of health care. And that's destroying communities.

DER SPIEGEL: Yet where there are losers, there should be winners as well. Who is to blame for this development?

Deaton: Many people have said that there are two ways of getting rich: One way is by making things, and the other is by taking things. And one of the ways of taking things is to make the government give you special favors. Those special favors don't create anything, but they can make you rich, at the expense of everybody else.

Case: For instance, the pharma companies get a law passed that Medicare has to pay for drugs at whatever price the pharma companies choose. Or the doctors' lobby doesn't allow as many people to go to medical school, which helps to keep doctors salaries up. That's one of the reasons why doctors are the largest single occupation in the top 1 percent.

DER SPIEGEL: Would you argue that those in the top 1 percent are peculiarly prone to rent seeking?

Deaton: No, but many people are in the 1 percent because of rent seeking. This mechanism is creating a lot of very wealthy people who would not be wealthy if the government hadn't given them a license to rip off the rest. We're not among the people who think of inequality as a causal force. It’s rent-seeking opportunities that create inequality.

DER SPIEGEL: How do the losers of this development react politically?

Deaton: Well, many of them like Donald Trump (laughs)!

Case: The election in 2016 was unique: Many people felt their voices weren't being heard either by the Republicans or the Democrats. They tended to move either toward Bernie Sanders on the left or to Donald Trump on the right.

They wanted to signal that things were not well with them, that they did not see the country moving in the right direction. People did not feel like the parties in the middle were adequately serving their needs, especially the working-class people.

DER SPIEGEL: It’s a phenomenon seen throughout the West – that center-left parties are no longer champions of the working class and that their leaders are mostly intellectuals.

Deaton: In the United States, the Democratic Party gave up representing the unions and switched to being a coalition of well-educated elite on the one hand and minorities on the other. And the white working-class in the middle was just left unrepresented.

In this respect, Hillary Clinton was the worst candidate you could possibly imagine. She's such a representative of that educated elite that appears to have no understanding of, nor sympathy with, ordinary working-class people.

DER SPIEGEL: She called them "deplorables."

Deaton: It revealed what she really thought of them. But those people do not see themselves as deplorable at all! There are a lot of people who think they're not represented by this educated elite, whether it's on the left or the right.

DER SPIEGEL: So the rage of Trump supporters has a rational foundation?

Case: Oh, certainly! They know something is wrong, and it's easy to scapegoat in such cases. Things like: If we can just shut down immigration, then wages would improve.

DER SPIEGEL: The president himself seems to be the rent-seeker in chief. Is he actually doing anything to mitigate the pain of his base?

Deaton: He - like inequality - is a consequence, not the cause. He certainly has changed attitudes towards international trade. Even Democrats have picked this up.

And it's possible that the dismantling or slowing down of globalization could benefit some white, working-class voters. On the other hand, if manufacturing is being brought back to the U.S., robots are likely to be doing most of the work, not the less educated.

DER SPIEGEL: Yet Trump himself is a member of the top 1 percent. Why are those voters attracted to Trump?

Case: He makes people feel that they have status, that they're being seen and heard. That's incredibly important. And if people can hold on to that and have faith in him, then even if things go against what they see as their immediate interests, they believe that in the long run, he will restore them to some position. People need hope.

DER SPIEGEL: But has he ever delivered?

Case: Not in an economic sense, probably, but in terms of how they feel about themselves and their status, certainly.

Deaton: We spend a lot of time in Montana when we were writing our book and we talked to a fair number of people there. They are very Republican. The Montanans feel that a lot of the regulations they have to obey, a lot of the environmental regulations, the wildlife regulations, are being set not in their interests, but in the interests of the educated elites in California and New York.

Issues like bringing the wolves back are divisive that way. Donald Trump is certainly doing something for those kinds of concerns by dismantling regulations. I'm sure he would kill all the wolves in Montana if he could.

DER SPIEGEL: Is it possible to identify the point when things started to go wrong in the U.S.?

Deaton: One great question to ask is: Why doesn't America have a strong federal welfare state with health care like other European countries do? One answer is the issue of race. In the middle of the 20th century, it was the southern senators of the Democratic party who blocked any consideration of publicly funded health care. People don't like to pay for services that go to people that don't look like them, especially when they are black.

DER SPIEGEL: There have been a lot of attempts to reform the system, the latest being Obamacare. Why did it fail?

Deaton: Obamacare was a good proposal, but in order to get it through, all the health care providers had to be bought off, and that made them even stronger. What Obamacare was doing was extending insurance to many more people, but there were no effective price controls. It got more people covered, but it made the whole industry even more expensive, not less.

DER SPIEGEL: If American capitalism is failing so many, is it still possible to fix the system?

Deaton: We’re certainly not in favor of killing robots or stopping buying cheap goods from abroad. A really essential problem is the reduction of lobbying in Washington. I've talked to a few politicians and they say: We need campaign finance rules. As one congressman said to me: As long as I'm spending all my waking hours raising money, I can't resist these people.

Case: The other heavy lift would be change in our education system. Currently, from kindergarten to high school, the focus is on children who will go on to university, where only 35 to 40 percent of them currently earn a bachelor's degree.

Education is a great divide when it comes to death, when it comes to pain, to mental health, marriage. Even in Britain, you don’t have this sharp divide between people with an BA and people without. Many people point to Germany as being a superior system, where there are many different qualification levels. We need something more like that.

DER SPIEGEL: You are critical of the political process in Washington. What has to change in order to put powerful interest groups on the defensive?

Deaton: Maybe this crisis will speed change up, a 50-50 chance perhaps. You know, catastrophes are not good for reform, or at least they're very risky: Think about the 1930s, America got Roosevelt, but you in Germany got Hitler. So, it could strengthen populism, it could undermine democracy. Or it could make it stronger.

DER SPIEGEL: You seem a bit tentative, though. You criticize bottom-up redistribution, but you’re not arguing in favor of those re-distributional policies that some Democrats want. Why are you against more progressive income taxation?

Deaton: As we mentioned earlier, in our view, inequality is the result of other deeper problems. First, we have to fix those deeper problems, and then we can worry about the tax system.

DER SPIEGEL: Amazon founder Jeff Bezos, to take one example, has a fortune of more than $100 billion!

Deaton: We have no objection to people who bring us enormous benefits getting very wealthy. We’re against people getting rich by burdening other people. The trouble with unfairness, though, is that everybody has different notions about what it is. The unfairness we identify is the rich getting rich by transferring money upwards. If you tax the rich, if you even take away all their money and give it to the poor, each of them would get only very little money.

DER SPIEGEL: What is your proposal?

Case: We want to focus on the reverse procedure: We have to put a stop to very rich people getting even richer by taking small amounts of money from millions of us. For example, every month I get a bill from a tech company for 99 cents for a service that I don’t remember ever asking for, and that I have no idea how to stop and it's not worth my time trying to find out.

But if, as I suspect, they do it to millions, it is small amounts of money moving from a large number of people to a small number of very wealthy people. That is just one example of the sort of upward redistribution that we talk about in the book.

DER SPIEGEL: Ms. Case, Mr, Deaton, thank you very much for this interview.

Nukes in Nevada

Will Donald Trump resume nuclear testing?

America’s 28-year moratorium on setting off nukes is looking shakier than ever

THE CARS drove an hour out of Las Vegas and lined up along the edge of the Yucca Flat on April 22nd 1952. They pointed towards the desert, as if it were a drive-in cinema. Newsmen, among them Walter Cronkite, had gathered for a killer performance: the first televised nuclear test, ten miles away at the Nevada Test Site.

“This is the greatest show on Earth,” an army captain assured soldiers in trenches, there to practise storming across an irradiated battlefield, ahead of a similar test the next year. “You won’t be hurt. Relax and enjoy it.”

Over four decades, America’s government conducted 928 nuclear tests in Nevada. The mushroom clouds could be seen from Las Vegas, where the chamber of commerce cannily issued tourist calendars with dates, times and plum viewing spots. On September 23rd 1992, the ground shook for the last time.

President George H.W. Bush, following the Soviet Union’s example the previous year, joined a moratorium on nuclear-weapons testing that has been extended by every president since. Yet some fear that America’s 28-year nuclear lull may be drawing to a close.

On June 23rd the State Department told Congress that it suspected that Russia had conducted “nuclear weapons-related experiments that have created nuclear yield”, in violation of the Comprehensive Test Ban Treaty (CTBT). It also said that excavation and other activity at China’s Lop Nur test site “raise concerns regarding China’s adherence to its testing moratorium”.

All three countries signed the CTBT in 1996, but only Russia has ratified it. The treaty would not enter into force until 44 designated countries ratify it; of those, India, Pakistan and North Korea have not even signed up.

Most experts say the accusations are thin gruel. America itself does in Nevada much of what it says China is doing at Lop Nur. Moreover, all three countries conduct “subcritical” tests, in which there is no critical mass of plutonium, no chain reaction and therefore no yield. Under the CTBT, these are kosher. Some, however, can be outwardly indistinguishable from illicit tests with tiny yields. In 1997 a Russian “test” turned out to be an earthquake.

But the charges are ominous. In May, according to the Washington Post, American officials considered conducting a “rapid test” to demonstrate the country’s nuclear prowess, with the intention of forcing Russia and China into trilateral nuclear talks, something that China has thus far resisted.

Detonating a nuke is relatively straightforward. American law requires the government to be able to conduct a nuclear test within two to three years of a presidential order. The problem is that it can be done properly, or quickly, but not both.

A “fully instrumented” test, designed to capture useful data, would take at least 18 months, according to the National Nuclear Security Administration (NNSA). But a crude detonation designed as a theatrical act of chest-beating, rather than a meaningful scientific endeavour, could be slapped together in months, well before Mr Trump’s first term concludes in January.

A test would cost somewhere between tens and hundreds of millions of dollars, according to insiders. And although the Nevada site is kept in working order, the population of Las Vegas and its environs has more than tripled since 1992, coming uncomfortably close.

“When they used to do underground tests, it would at times rock buildings in Las Vegas,” says Cheryl Rofer, who worked at Los Alamos as a scientist from 1965 to 2001 (though modern tests would have far smaller yields).

An editorial in the Las Vegas Sun, one of the city’s newspapers, offered a pithy response to the idea of churning up the ground again: “No. Hell no. Not now. Not ever.” The sentiment is widespread. Polls conducted last year show that 72% of Americans (and 59% of Republicans) disapprove of testing.

Unsurprisingly, the Department of Energy, which oversees nuclear weapons, and its laboratories, like Los Alamos in New Mexico, is not keen on the idea. Nor are the Pentagon or the armed forces.

On June 16th a dozen distinguished scientists, many formerly associated with America’s nuclear laboratories, wrote an open letter to Mitch McConnell, the Senate majority leader, arguing that explosive testing “would serve no technical or military purpose”. That is because there are now sophisticated ways to inspect and improve nuclear weapons without setting them off.

America spends eye-watering sums to tend its arsenal; the NNSA requested nearly $16bn for the coming fiscal year. That buys some impressive kit. Modern supercomputers can simulate thermonuclear explosions with remarkable fidelity. In 1993, shortly after the last test, the world’s most powerful supercomputer, at Los Alamos, could manage less than 60 gigaflops, a measure of computing speed.

Today’s equivalent, at the Oak Ridge National Laboratory in Tennessee, can exceed 148 petaflops, which is more than 2m times faster. American government laboratories own six of the world’s 20 fastest supercomputers, though China has been catching up.

The debate over testing is in part a “conflict of generations”, says one senior scientist: many who cut their teeth on explosive tests distrust the new, virtual ways.

America also has an enviable pile of data from its old tests, having done more than every other country put together (see chart). It conducted 22 tests for every Chinese one. Its rivals would therefore have the most to gain from any resumption of testing.

American data may be superior, too. Steven Pifer, a former American diplomat now at Stanford University, recalls visiting a Soviet test site in Kazakhstan in 1988 where the vertical test shafts were less than half the width of America’s, leaving far less space for instruments. India’s lone test of a hydrogen bomb is widely thought to have been a fizzle.

Pakistan is eager to refine smaller nukes that could be aimed at Indian tank columns. The rush to testing might spell doom for the Nuclear Non-Proliferation Treaty (NPT), whose non-nuclear members are fed up with the lack of tangible progress towards disarmament.

Many experts reckon that even the truculent Mr Trump would shy away from a test. The aim at present, they suggest, is pactocide. Mr Trump’s administration is stacked with arms-control sceptics who never wanted America to sign the CTBT in the first place, viewing it as an irksome fetter on American power.

Having swept aside a series of other agreements—a nuclear deal with Iran in 2018, the Intermediate-range Nuclear Forces (INF) treaty with Russia last year and the Open Skies treaty in May—the treaty-phobes spy an opportunity to slough off the CTBT, too.

In his recent book, “The Room Where It Happened”, John Bolton, America’s national security adviser until September, writes that “unsigning” it “should be a priority”. Mr Bolton is persona non grata in the White House these days, but his diplomatic nihilism lives on.