The New Massive 

Doug Nolan

A most pivotal election is now only 10 days away. 

Joe Biden has a commanding lead in the polls. Moreover, betting sites are indicating rising odds of the Democrats taking control of the Senate (PredictIt: 64% Dems vs. 41% Republicans). 

The Democratic “clean sweep” scenario has become a distinct possibility. 

U.S. daily COVID cases have spiked to over 80,000, with Friday setting a new single-day record. Unlike the first two “waves,” the surge in new infections is not dominated by particular metropolitan areas or a few large states. COVID has methodically dispersed throughout the heartland, with rural America in the crosshairs. 

This is a particularly troubling development for small town hospitals and healthcare systems facing limited capacity and scarce resources. Ominously, outbreaks have slammed many northern states early in the winter season. Over the coming weeks, the virus can be expected to shadow cooler weather advancing south.

Meanwhile, odds have tanked for stimulus legislation to be wrapped up prior the election. Bloomberg: “Pelosi, Mnuchin Trade Blame as Stimulus Negotiations Stall.” 

The President’s chief of staff remains hopeful for a deal, though signs are not positive. 

An aid to Nancy Pelosi commented Friday evening that the Speaker remains hopeful for a deal “soon”. Perhaps willing to be more candid, Secretary Mnuchin blamed the stalemate on Pelosi being “dug in.” 

At this point, the Democrats have an incentive to dig in and hold out. If they don’t get the stimulus package they desire right now, they’re increasingly confident of moving forward when they gain control of the purse strings.

October 19 – Bloomberg (Brian Sozzi): “Break out those shovels, picks and the debit cards if a blue wave of Democrats washes into D.C. come Election Day. Goldman Sachs said… in a new note that a blue wave could lead to a whopping $2.5 trillion new stimulus plan. 

‘This would likely include a stimulus package in Q1, followed by infrastructure and climate legislation. In this scenario, we would expect legislation expanding health and other benefits, financed by tax increases, to pass in Q3,’ explained Goldman’s Jan Hatzius.”

As crazy as it may sound, might Goldman’s “whopping” $2.5 TN stimulus forecast prove “conservative”? 

There’s a not unlikely scenario that would spur even grander spending plans. Would a Democratic “clean sweep” mean no meaningful stimulus legislation during the lame duck session? And in the event of a severe COVID winter, how voracious might the appetite for stimulus spending be by late-January? 

October 21 – Financial Times (Stephen King): “In a world in which government debt is rapidly rising, it’s hardly surprising that there’s growing interest among investors in Modern Monetary Theory. After all, one of its central claims is that budget deficits are, from a financing perspective, an irrelevance. So long as increased government borrowing doesn’t lead to inflation — and, at the moment, there really isn’t much of it around — we can all afford to relax. 

As Stephanie Kelton notes in her book The Deficit Myth, governments with access to a printing press are ‘currency issuers’ (exceptions include, most obviously, members of the eurozone). As such, all their spending could, in principle, be financed via the creation of cash. Taxes may serve other purposes — the redistribution of income and wealth, the discouragement of ‘sinful’ behaviour — but, in the world of MMT, they serve no useful macroeconomic role.”

We’re drifting ever deeper into dangerous territory. 

The economy sopped up last year’s $3.1 TN federal deficit like water into a dry sponge. 

The conventional narrative holds that the pre-COVID economy was robust and healthy. 

It was neither. Instead, years of loose finance cultivated a “Bubble Economy” - a maladjusted structure that evolved into a ferocious Credit Glutton. This has become much more than some theoretical precept from Austrian economics. 

It’s a pressing reality, with momentous ramifications for politics, the markets and American society more generally. 

Especially in the “clean sweep” scenario, it’s not inconceivable the federal government follows up last year’s 15% of GDP deficit with another 15%. 

My baseline deficit guesstimate would be annual deficits over the next few years in excess of 10% of GDP.

The analysis is turning quite intriguing.

Humdrum is how I would characterize today’s popular “big stimulus is good for stocks” narrative. 

The system has commenced a grand experiment in New Massive deficit spending. 

This follows years of very large (formerly known as “massive”) deficits. 

And, of course, this fiscal experiment follows on the heels of the Fed’s decade-long QE experiment - that this year supplanted previous “massive” balance sheet growth with the New Massive.

Ten-year Treasury yields jumped nine bps this week to 0.84%, the high since June 8th. 

The dollar index declined 1.0% this week, trading Wednesday to the low since September 2nd. 

Thirty-year “long bond” Treasury yields traded as high as 1.69% in Friday trading, the high going back to March 19th.

I’ll assume a Democratic-controlled Washington – in a crisis backdrop - would likely ensure upwards of a $3 TN stimulus program – just to get started. COVID has pushed many over the edge – and it’s poised to push only harder. 

Millions have lost their jobs and scores of businesses have failed. Many organizations are in the process of going bust. Large numbers of state and local governments are being pushed to the brink. Many so-called “blue” cities and states came into the pandemic already financially challenged. 

But few state and local governments will come out of this crisis unscathed. Many colleges and universities and scores of hospitals – to the brink. Schools across the country will need assistance. 

A tragedy of a black hole of financial need. Traditionally, there would be budgets, priorities and compromises. Market discipline would be lurking – the old “bond vigilantes.” 

James Carville from the early-nineties: “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.”

There is an optimistic view: with economic recovery so far exceeding expectations, the longer fiscal stimulus is delayed the less of it that will be needed. 

But I fear there’s a major shoe still to drop. 

Over recent months, bubbling markets generated some forceful economic tailwinds. 

Wealth effects have boosted confidence and spending. 

More importantly, the loosest financial conditions imaginable have supported a record $1.4 TN of corporate debt issuance. 

Easy Credit Availability has supported economic activity – funding new investment as well as keeping vulnerable companies afloat. 

The booming MBS market and record low mortgage rates have pushed strong housing markets into Bubble territory. 

All bets are off when markets falter. 

Sinking securities markets would see a hit to perceived wealth and confidence – while a tightening of financial conditions would choke a structurally frail economic structure. 

Recovery would give way to another economic leg down, with a further hit to employment, state and local finances, and general hardship throughout the economy. 

Such a scenario would see even greater financial shortfalls and resulting federal deficits. 

And what is California’s fiscal position following a financial markets downturn? 

In such a circumstance, where might a Democratic controlled Washington draw the line on spending? 

New Massive spending, deficits and Treasury issuance. 

Massive new supply risks a Treasury market backlash – and we’re already seeing some backup in long-term yields. And I do appreciate the bullish view the Federal Reserve would simply step in to buy all the Treasuries necessary to ensure yields remain pegged at minimal rates. 

I just don’t believe this would be a slam dunk for the Fed. 

For one, confidence in the dollar has begun to wane. 

Significantly expanding QE risks unleashing dollar and market instability. Analyzing the potential course of policymaking - New Massive fiscal and current account deficits along with potential for general U.S. instability - a crisis of confidence in the dollar cannot be ruled out. 

Importantly, Federal Reserve QE resolve has yet to be tested by either dollar or Treasury market instability. 

A combination of both would surely have the Fed moving more gingerly on QE than markets currently anticipate.

How might a momentous political shift in Washington impact the Federal Reserve? 

The Fed has bestowed Washington a blank checkbook. 

Going forward, how might Republicans view enormous handouts to the troubled blue states that are being monetized by the Fed? 

It was inevitable – and pushed forward by the pandemic: The Federal Reserve interjected itself into the deepening divide of social and political acrimony - and conflict. 

From 2008 to the present, the Federal Reserve has faced no serious pushback to its QE experiment. This may be about to change. 

I can see the Republican Party emerging from a traumatic election with a much more suspicious eye toward Federal Reserve “money printing” and deficit monetization. 

I expect strong pushback from Republicans when it appears the Fed is monetizing the Democrats' state and local government bailouts and liberal agenda. 

While Republicans in such a scenario would have limited legislative recourse, the Fed does not want to be in the middle of such a hostile partisan clash. 

The Federal Reserve will be taking significant institutional risk, with the conservative media and a major segment of the populace adopting a critical view of the Fed’s non-traditional policy course. 

For now, markets are distorted and dysfunctional. 

There are huge costs associated with the markets’ failure to discipline even the most egregious excess. 

Systemic stress is now mounting rapidly, and a destabilizing bout of Market Discipline Lies in Wait. 

The Treasury market is vulnerable. At least for now, market faith in the almighty power of the Fed’s balance sheet holds firm. 

But what about the dollar, a complex global market beyond the Fed’s control? 

And Washington is doing everything imaginable to put the dollar’s global reserve currency status in serious jeopardy. 

Almost 30 years of persistent Current Account Deficits. 

The New Massive ensures dollar vulnerability. Twin Deficits (fiscal and Current Account). 

Fed holdings expanding almost $3.2 TN over the past year. M2 “money” supply inflating $3.6 TN in the last 52 weeks. 

The dollar is really lucky it has a bunch of marred competitors. 

But I’d still rank dollar instability near the top of the list of potential recipients of market discipline in the event of a Democrat “clean sweep.”  

The threat of long economic Covid looms

Governments need to focus on the cost of inaction, not the cost of supporting economies

Martin Wolf

    © James Ferguson

Covid-19 has left many patients with debilitating symptoms after the initial infection has cleared. This is “long Covid”. What is true of health is likely to be true of the economy, too. 

The pandemic is likely to give the world not just a deep recession, but years of debility. To meet the threat of a “long economic Covid”, policymakers must avoid repeating the mistake of withdrawing support too soon, as they did after the 2008 financial crisis.

This danger is real, even if there remains much uncertainty about how the crisis will unfold. Not least, we do not know how soon or completely Covid-19 will be brought under control.

Yet we do already know many things about the economic impact of the pandemic. We know it has inflicted a huge global recession; that the economic costs have been greater for the young, the unskilled, minorities and working mothers; and that it has badly disrupted education. We know, too, that “close to 90m people could fall below the $1.90 a day income threshold of extreme deprivation this year”, as the IMF has put it.

We know that many businesses have been hurt, as demand for their output collapsed or they were locked down. The second waves of the disease now crashing on to many economies will make this worse. 

As the IMF’s Global Financial Stability Report shows, financial fragility is increasing in already highly indebted sectors of high-income economies, as well as in emerging and developing countries.

But we also know that things could have been far worse. The world economy has benefited from extraordinary support from central banks and governments. According to the IMF’s Fiscal Monitor, fiscal support has amounted to “$11.7tn, or close to 12 per cent of global GDP, as of September 11 2020”. This is vastly more than the support offered after the global financial crisis.

We know, nevertheless, that what has already happened is going to leave deep scars. 

The longer the pandemic continues, the bigger those scars will be. The IMF is already forecasting a big shortfall in economic activity relative to potential in 2022-23. 

That is sure to keep private investment subdued. Not surprisingly, the fund also now forecasts significantly lower growth of real gross domestic product per head between 2019 and 2025 than it forecast in January.

In a crisis of this scale, there is only one entity able to act as both insurer and supporter of demand. Unfortunately, the capacity of governments to act varies hugely. But those with globally accepted currencies have enormous room for manoeuvre. They have used it already; they will need to go on doing so.

Fiscal policy has to play a central role, as it alone can provide the necessary targeted support. Central bankers have been clear about this. The Fiscal Monitor helpfully divides the needed support into three phases: lockdown; gradual reopening; and post-Covid recovery.

During lockdown, the onus has to be on cash transfers, unemployment benefits, support for short-time work, temporary deferral of taxes and social security payments, and liquidity support for businesses.

During reopening, support has to be more targeted, with incentives focused on getting people back to work. Plans should be made for higher public investment. Meanwhile, support for companies needs to be focused on those with decent prospects, but with controls over dividends and executive pay.

During the post-Covid period, systems of social protection that the pandemic has shown to be defective will need reform. Meanwhile, attention must shift towards active labour market policies and big boosts to public investment. This, argues the Fiscal Monitor, will strongly stimulate private investment. Mechanisms for accelerated debt restructuring will be needed, too.

Getting all this right, particularly as the timing of the transitions between the disease’s various phases is uncertain and may not be in one direction, will be hard. Policymakers have to be flexible, but not frugal.

All this spending is going to raise public deficits and debt substantially. The global general government fiscal deficit is forecast to hit 12.7 per cent of GDP this year; in high-income economies, it will reach 14.4 per cent. The global ratio of general government debt to GDP is forecast to jump from 83 to 100 per cent of GDP between 2019 and 2022, with that for high-income countries going from 105 to 126 per cent.

Never mind. For high-income countries, real interest rates on long-term borrowing are zero, or less. Central banks are also credibly committed to maintaining very easy monetary policies. Governments can afford to spend. What they cannot afford is not to do so, leaving economies to falter, people to feel abandoned, economic scarring to worsen and economies to be caught in permanently lower growth.

Governments have to spend. But, over time, they must shift their focus from rescue to sustainable growth. If, ultimately, taxes have to rise, they must fall on the winners. This is a political necessity. It is also right.

We are still only at the beginning. 

We cannot know how this will end, not least because we do not know what people in power will do. But we do know that history will judge policymakers harshly if those with room to do so do not rise to the occasion.

A long economic Covid must be prevented. 

This does not mean abandoning efforts to control the disease, but rather the reverse. It will also require active, imaginative and bold economic policy for years ahead. Do not worry about what it will cost to do this. 

Worry far more about what it will cost not to.

Digital money

Ant Group and fintech come of age

A blockbuster listing shows how fintech is revolutionising finance

In 1300 or so Marco Polo, a Venetian merchant, introduced Europeans to a monetary marvel witnessed in China. The emperor, he wrote, “causes the bark of trees, made into something like paper, to pass for money all over his country”. 

Eventually the West also adopted paper money, some six centuries after China invented it. More recent foreign travellers to China have come back agog at the next big step for money: the total disappearance of paper, replaced by pixels on phone screens.

China’s pre-eminence in digital money is likely to be on display in the next few weeks with the monster listing of Ant Group, its largest fintech firm, in Hong Kong and Shanghai. 

Measured by cash raised, it will probably be the biggest initial public offering in history, beating Saudi Aramco’s last year. 

Once listed, Ant, which was formed in 2004, could have a similar value to JPMorgan Chase, the world’s biggest bank, which traces its roots to 1799. Ant’s rise worries hawks in the White House and enthralls global investors. 

It portends a bigger transformation of how the financial system works—not just in China but around the world.

Jamie Dimon, JPMorgan’s boss, and others have kept a wary and admiring eye on Ant for years. Spun off from Alibaba, an e-commerce firm, it has over 1bn users, mostly in China, and its payments network carried $16trn of transactions last year, connecting 80m merchants. 

Payments are just the appetiser. Users can borrow money, choose from 6,000 investment products, and buy health insurance. Imagine if main-street banks, Wall Street’s brokers, Boston’s asset managers and Connecticut’s insurers were all shrunk to fit into a single app designed in Silicon Valley that almost everyone used. Other Chinese firms, notably Tencent, which owns the WeChat app, also operate cutting-edge fintech arms.

China is not alone. The pandemic has supercharged activity elsewhere (see article). Alongside the surge in global e-commerce and remote working there has been an accompanying boom in digital payments, which have jumped by 52% at Venmo, an American network, compared with last year, and by 142% at Mercado Pago, a Latin American fintech. 

Parisian farmers’ markets, pizza firms and Singaporean hawkers have upgraded their systems so they can be paid instantly without physical contact or cash. Investors sense a tectonic shift, like the one that shook retailing. Conventional banks now account for only 72% of the stockmarket value of the global banking and payments industry, down from 96% in 2010.

If the surge in digital finance is universal, the business models behind it are not. In Latin America look out for digital banks and e-commerce pioneers such as Nubank and MercadoLibre, owner of Mercado Pago. 

In South-East Asia Grab and Gojek, two ride-hailing services, are becoming “super-apps” with financial arms. 

Fintech firms now provide the majority of consumer loans in Sweden. 

In America credit-card firms such as Visa (the world’s most valuable financial firm), digital-finance giants such as PayPal (the sixth) and the big banks both co-operate and compete. Tech giants such as Apple and Alphabet are dipping their toes in, tempted by the financial industry’s $1.5trn global pool of profits.

There is much to be excited about. 

At its best, fintech offers big gains in efficiency. 

If the world’s listed banks cut expenses by a third, the saving would be worth $80 a year for every person on Earth. Ant makes razor-thin margins on payments and takes minutes to grant a loan. Gone are the days of getting gouged by money-changers in airports. Firms such as TransferWise and Airwallex offer exchange services that are cheaper and faster.

Digitisation also promises to broaden the spread of finance. Reaching customers will be easier and data will make loan underwriting more accurate. Firms like Square and Stripe help small businesses connect to the digital economy. 

In India and Africa digital finance can free people from dodgy moneylenders and decrepit banks. By creating their own digital currencies, governments may be able to bypass the conventional banking system and tax, take deposits from, and make payments to citizens at the touch of a button. Compare that with the palaver of Uncle Sam posting stimulus cheques this year.

Yet the fintech conquest also brings two risks. The first is that it could destabilise the financial system. Fintech firms swarm to the most profitable parts of the industry, often leaving less profit and most of the risk with traditional lenders. 

Fully 98% of loans issued through Ant in China ultimately sit on the books of banks, which pay it a fee. Ant is eventually expected to capture a tenth or more of Chinese banking’s profits. 

Lumbering lenders in the rich world are already crushed by low interest rates, legacy it systems and huge compliance costs. If they are destabilised it could spell trouble, because banks still perform crucial economic functions, including holding people’s deposits and transforming these short-term liabilities into long-term loans for others.

The second danger is that the state and fintech “platform” firms could grab more power from individuals. Network effects are integral to the fintech model—the more people use a platform the more useful it is and likely that others feel drawn to it. So the industry is prone towards monopoly. 

And if fintech gives even more data to governments and platforms, the potential for surveillance, manipulation and cyber-hacks will rise. In China Ant is a cog in the Communist Party’s apparatus of control—one reason it is often unwelcome abroad. 

When Facebook, a firm not known for its ethical conduct, launched a digital currency, Libra, last year, it caused a global backlash.

As the fintech surge continues, governments should take a holistic view of financial risk that includes banks and fintech firms—Chinese regulators rightly snuffed out Ant’s booming business in loan securitisation, which had echoes of the subprime fiasco. 

Governments should also lower barriers to entry so as to boost competition. Singapore and India have cheap, open, bank-to-bank payment systems which America could learn from. 

Europe has flexible banking that lets customers switch accounts easily. Last, the rise of fintech must be tied to a renewed effort to protect people’s privacy from giant companies and the state. 

So long as fintech can be made safer, open and respectful of individual rights, then a monetary innovation led by China will once again change the world for the better.

Covid sends rollercoasters on a big plunge

The pandemic has hit theme parks and movie theatres hard, adding to disruption from streaming

Brooke Masters

© Ingram Pinn/Financial Times

Are we ever going to go out to have fun again? In the past 10 days, Disney has laid off 28,000 theme park workers, Cineworld has shuttered its US and UK cinemas and the release of both the new James Bond flick and Dune have been pushed back.

At this point, the only major movies left on the schedule for 2020 are Wonder Woman 1984 and Pixar’s Soul. No wonder AMC Entertainment, which only reopened US movie theatres in August, has closed Odeon cinemas in the UK on weekdays and is reducing hours elsewhere.

Mass entertainment has been hit hard by coronavirus. Shut entirely in the first months of the pandemic, some cinemas, theme parks and attractions have been able to reopen. But they are operating with reduced capacity, and those guests that do come are spending less.

Six Flags, a US theme park chain, said over the summer that spending per guest had dropped 15 per cent year on year, partly because the parks that were open had fewer “in-park spending opportunities”. And Disney told analysts that it was seeing less upside than expected from reopening its Florida parks because more guests were from the local areas and spent less on hotels and merchandise.

But public health restrictions have kept two of the US’s most important markets, California and New York, almost entirely closed. Even in Asia, where the virus is under better control, Hong Kong Disneyland is still closed two days a week and attendance at Comcast’s Universal Studios Japan is running at 25 per cent of normal.

Before the latest lay-offs, IAAPA, the global industry group for theme parks and attractions, told the US Congress that the pandemic had resulted in 235,000 job losses and would cut industry income by $23bn in the US alone. That’s a drop of 40 per cent.

Things are probably going to get worse before they get better. After all-but begging California to let parks there reopen, Disney has now thrown in the towel, for the short term. Other park operators are likely to follow suit. “It’s going to be a shitty one to three years,” says Martin Lewison, an associate professor at Farmingdale State College who studies theme parks. “We will find out which businesses are sustainable at lower capacity.”

For cinemas, the news is even worse. They need blockbusters to drive attendance, but film studios are wary about wasting their biggest offerings on empty theatres. That creates a vicious circle that was exacerbated by the disappointing release last month of Tenet, the Christopher Nolan science fiction epic. It cost $200m to make but took in just $41m in its first month in the US.

Since then, the studios have fallen over themselves to delay their blockbusters — so many 2020 films have been pushed back that The Batman, originally set for next October, has been moved to 2022. 

But Netflix and other streaming groups are continuing to pump out new offerings, giving cautious consumers even less reason to leave home. “Hollywood looks like a deer in the headlights. The entire entertainment business is paralysed because theatres are closed,” says Rich Greenfield, analyst at research group LightShed. “It’s a case study on how hard it is for a legacy business to adjust.”

At a glance, cinemas and attractions share many of the same issues. Due to Covid-19, consumer demand has fallen sharply, and high fixed costs mean they have relatively few ways to respond. They therefore must ask what to do while they wait for a public health breakthrough and for demand to revive. Lay-offs, reduced hours and temporary closures will only go so far.

However, the sectors are facing different fates. Even before the virus, cinemas were already under threat from streaming. While high-impact visual extravaganzas still had the power to pull people out of their homes, more and more people were preferring to watch ordinary films at home. 

Between 2015 and 2019, the take from global theatrical releases has risen 8 per cent to $42bn, but the home/mobile market has leapfrogged it, growing 62 per cent to almost $60bn, according to the Motion Picture Association, which represents US studios.

Analysts say that the US had too many movie screens (40,000-odd) before the pandemic — total attendance was down 4.6 per cent in 2019 — and it probably needs fewer now. UK film attendance has been relatively flat.

“Probably that five to 10 years of industry disruption has instead been condensed into six months,” says David Ingham, partner at Cognizant, a tech consultancy. “Attendance levels are not likely to return to pre-Covid levels any time soon.”

By contrast, theme parks have been on a decade-long tear, with global attendance at the top 10 theme park groups hitting 521m in 2019, up 60 per cent from 322m in 2010, according to the Themed Entertainment Association. With the biggest rollercoasters easily costing $100m and taking years to design and build, incumbents also have a huge advantage once the crowds come back, points out Prof Lewison.

“The movie theatre industry won’t be as strong as it was before. There was already a negative trend toward streaming that is being accelerated by the pandemic,” says Alexia Quadrani, a JPMorgan analyst. “Theme parks are not as easily replaceable.”

That makes it all the more attractive for the big operators to cut variable costs, hunker down and wait. It’s bad news for theme park workers right now, but may be the industry’s best chance for long-term survival.

Gold Fundamentals Look Strong

Equity Management Academy


- With governments printing money non-stop, gold is sure to rise in value.

- The IMF is developing a new model to deal with the current crisis and build prosperity for more people in the future.

- Gold's intense volatility is perfect for making profits day trading using a rigorous system.

- The fundamentals and the technicals point to $1,900 gold.

We are in the midst of a transformation into a new economic system. The International Monetary Fund is discussing how to restructure the global economy for the benefit of mankind. 

The old system is dying. A new one will be created. In order for the world’s economies to come out of the pandemic, they are going to have to increase their debt ratios far more than previously thought. 

The UK said its debt ratio is about 125% compared to GDP. The IMF is suggesting that Western economies increase their debt-to-GDP ratio to 125%. 

The US is already beyond that level. Therefore, they are going to create even more debt. They continue to follow the Keynesian model.

Until 1971, the US dollar was backed by gold. Once the US went off the gold standard, the dollar started to collapse in terms of intrinsic value and purchasing power. 

The amount of money that has been printed over the years means that the dollar has lost 98% of its purchasing power since 1971 and that decline is now nearing an end point, making the dollar and other fiat currencies worth almost nothing.

The IMF is trying to help developing countries, which are suffering in large part due to the policies that the IMF has followed for years. Venezuela, for example, has so much printed money that inflation is starting to accelerate. 

You need to prepare for such inflation around the world, including in the United States. 

Fiat currencies will be worth nothing. 

Gold is a solid alternative to protect your wealth.

Millions of Americans are homeless and/or unemployed. The homeless population around the world is exploding. The lower middle class is homeless. Governments are debating how much money is needed, while Main Street and the people suffer. 

2008 marked the start of when all the corruption of the system started to be revealed in terms of inaccurate bond ratings, massive debt to individuals who could never afford to pay it back, and investments based on borrowed money. 

Inflation is already running at about 10%, if you use the old system of measuring inflation. Today, food and energy are left out.

Whoever wins the election in November, they will face the same problem and will in all likelihood continue to print money to shore up the system for as long as possible. They will continue to print money, which will devalue fiat currencies to the point of extinction. 

By devaluing currency, they decrease the value of the debt in the fiat currencies. Therefore, they keep interest rates at almost zero so that big banks and investors can borrow as much money as they want.

We expect extreme volatility in the markets over the next few months. Gold is moving $30 or $40 a day, which for a trader is a dream come true. You can make a great deal of money in such markets, but only if you know your risk and how to trade without emotion, such as with the Variable Changing Price Momentum Indicator (VC PMI). 

Only a small percentage of investors are involved in the gold market and even fewer in the silver market. Once more people realize the importance of gold and silver for the future, prices will rise to levels never seen before. 

We are down $200 from the highs of $2,088 a few months ago. We are at $1,888 or so, so we can see a major move up is on the horizon.

Why is gold down if all the fundamentals are so bullish? Talk about a stimulus package may be affecting the market. The fundamentals often lag the market, and the fundamentals are often contradictory. 

Whatever the cause of gold declining, if you focus on the technicals and what the market is telling us, then you can ignore the fundamentals and trade profitably.


Gold is in a fast market. It is trading last at $1,901.20. We have a bit of a selloff and the Variable Changing Price Momentum Indicator (VC PMI) has activated the daily Buy 2 level at $1,901. This is a trend alert. The first time the price touches that level, it is an alert. It tells you to be ready if the market closes above that number using the 15-minute bar, then a buy trigger will be activated.

The market came down from $1,936. The weekly VC PMI codes told us that we wanted to sell when the market reached $1,933. The market rose and found the supply that the VC PMI predicted would be up at that level, before it came down to the weekly mean of $1,909. Now it is activating the daily VC PMI buy signal. This is the conservative approach; waiting for the market to touch that number and then close above that number before you enter the market. 

If you want to be aggressive, you can buy now at the market to go long at $1,904. $1,901 is the Buy 2 level, so you can use that level as your protective stop. You can also use a maximum dollar stop based on your size and profile. You can also carry the position to the end of the day, which would be an aggressive play for day traders.

Closing above $1,904 is a bullish signal. At this level, buyers will begin to get into the market and the market is likely to run back up to the average price. If we close below $1,901, then $1,879 and $1,869 become targets, which are the VC PMI levels below. This area is a very high probability (90% or 95%) buy area. 

Trading below $1,900 is now the extreme level below that market on the daily, weekly and monthly VC PMI levels. If supply keeps coming in, we may go down to $1,879. We are in a monthly bearish price momentum from $1,914.

We are looking to add positions at these levels. We have covered our short hedge and are now focused on buying GDX and NUGT. We are entering an area where there is a high likelihood of buyers coming into the market and prices going back up.

Constant Covid cleaning carries its own dangers

Soap and disinfectant for the home are selling fast but not all microbes should be wiped out

John Gapper 

A 1951 advert for Lifeguard disinfectant © Picture Post/Hulton Archive/Getty

On Wednesday, Sophie Hinchliffe cleaned a toilet in her Essex home with Harpic Active Fresh liquid, and sprayed its gleaming flush plate with Dettol All in One disinfectant spray (“kills colds and flu viruses”). Then she shared the story with her 3.8m Instagram followers.

Mrs Hinch, as she is known, is the UK’s top “cleanfluencer” and a best-selling author, whose video tips, such as how to clean a washing machine with a sonic scrubber and the scented disinfectant Zoflora (to the sound of Christina Aguilera’s “Dirrty”), have an eager following. Now, she has company in scrubbing her surfaces thoroughly.

Disinfectant is not an exciting product. The most famous brands were invented decades ago — Dettol in 1933, Zoflora in 1922, and Lysol in 1889 (Lysol proved its worth during the 1892 Hamburg cholera outbreak and again in the 1918 Spanish flu pandemic). While varieties have proliferated, the basic formula is little changed.

But hygiene is having a moment, thanks to Covid-19 and the urge to sanitise. Reckitt Benckiser, which owns Dettol, Lysol and Harpic, announced a 13 per cent rise in year-on-year sales for its latest quarter this week, while Procter & Gamble, the company whose eponymous founders launched Ivory soap in 1879, said that quarterly home care sales rose by more than 30 per cent.

For companies accustomed to tepid growth, it is a revelation, but will the cleaning boom end when the fear of infection fades? The deeper doubt is whether all this sterilising is too much of a good thing. Cleaning fluid contains strong chemicals and doctors had to warn against the toxicity of bleach after US president Donald Trump mused about injecting it to kill the virus.

There is more going on than the rush to hoard sanitiser at the start of the pandemic: P&G’s revenue growth rate was higher from July to September than in spring. The shift to cleanliness has accompanied greater homeliness — sales of dishwasher pods and laundry detergent have risen as people spend less time eating out and in the office.

“The healthy, normal, fortunate adult in our culture is largely satisfied in his safety needs,” the psychologist Abraham Maslow wrote in 1943. He had the luxury of being in New York and not being bombed, but he had a point. Cities were policed, penicillin was discovered, and pandemics were less of a threat.

Maslow argued that once essentials such as having enough to eat and being safe from war and plague were satisfied, human needs climbed a pyramid towards belonging, accomplishment, and self-expression. That is how consumption has evolved — from soaps to vitamin pills, from hygiene to gym memberships and yoga classes.

The virus has pushed us back down Maslow’s pyramid towards the physiological and psychological basics. We will resume going to sporting events and on foreign holidays when we can, but the urge to make a clean and comfortable home for our families will endure.

That is good for companies such as P&G and Unilever, whose customers were defecting to newer brands that offered organic ingredients and greater individuality. In the rush to safety, the history and familiarity of the old brands are strengths.

But it begs the question of how much cleaning is enough. Before the pandemic, families with two partners at work and less time for chores had adopted the “maintenance clean” — a quick catch-up rather than a day-long domestic slog. In February, P&G launched a cleaning spray called Microban 24 for that use.

Mrs Hinch is less of an outlier now in having a cupboard full of cleaning fluids and granules that she calls Narnia. This means more virus-killing chemicals are being sprayed and shaken around the home. “I do this often, so it does not build up too much,” she remarks about her washing machine scrub.

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The active ingredient in Zoflora and others is benzalkonium chloride, one of a group of disinfecting chemicals called QACs, or quats. They have been popular for so long because they work — they contain carbon atoms that breach the membranes around viruses and bacteria, and kill them.

More than 200 of 420 products recommended by the US Environmental Protection Agency against coronavirus contain quats. But they can cause asthma and irritate skin, although some anti-microbial soaps still contain them. They can also inhibit sewage treatment and scientists worry that overuse may encourage antibiotic resistance.

One US study of homes in Indiana in June found quats in more than 90 per cent of dust samples and noted that exposures were higher in households that cleaned more often. “The increased use of household disinfectants and other cleaning agents containing QACs during the Covid-19 pandemic is of significant concern,” it concluded.

Protecting against Covid-19 by being hygienic is a sensible response and fulfils the human instinct for safety. But while no one in their right mind injects bleach, washing obsessively has its own risks. Mrs Hinch’s home looks fearsomely clean, but some microbes are worth preserving.

Power struggles entangle the Vatican

Battlegrounds are alleged financial crimes, sexual abuse scandals and Pope Francis’s reform efforts

Tony Barber

     © Ingram Pinn/Financial Times

Sometimes for excellent reasons, presidents and prime ministers in democracies are prone to suspect plots aimed at removing them or forcing fundamental policy changes. 

The reign of Pope Francis, now in its eighth year, testifies to the fact that ruthless power struggles go on at the Vatican, too.

The infighting revolves around alleged financial crimes, sexual abuse scandals, doctrinal disputes and Pope Francis’s efforts to reform the Vatican’s administrative apparatus. 

All are being weaponised in a contest for control of the Roman Catholic Church that has persisted since the death in 2005 of John Paul II, the second-longest-serving pope in the Church’s more than 2,000-year history.

What distinguishes these events from turbulent episodes in earlier eras, such as the Italian Renaissance, is that they are tangled up with political battles and culture wars being fought in the US and other western societies, not to mention Africa and Asia. 

Rightwing secular politicians are aligned with ultra-conservative clerics in wanting to see the back of the Pope and his reforms. Liberal politicians and progressives among the world’s Roman Catholics, estimated by the Vatican to number more than 1.3bn people, hope that he will succeed.

Matters came to the boil last month when the Argentine-born pope took the unusual step of forcing the resignation of Cardinal Giovanni Angelo Becciu, an Italian prelate, on grounds of suspected embezzlement of Church funds. The cardinal, who denies wrongdoing, lost his job as head of the Congregation for the Causes of Saints, the Vatican agency that oversees canonisations.

Cardinal Becciu was a very powerful figure from 2011 to 2018 at the Curia, the Holy See’s central administrative organ. As number two at the Curia’s secretariat of state, he was at daggers drawn with Cardinal George Pell, an Australian whom the Pope appointed in 2014 to bring transparency to the Vatican’s notoriously opaque finances.

Cardinal Pell was sentenced to prison in Melbourne last year for sexual molestation of two choirboys, but in April Australia’s highest court overturned his conviction. Now allegations have surfaced in the Italian media that Cardinal Becciu tried to influence his rival’s trial by bribing a witness for his testimony. Both the Italian cardinal and the witness reject the allegations as false.

The clashes show how controversies at the Holy See overlap. Cardinal Becciu was behind a multimillion-pound London property deal that is under investigation by Vatican magistrates. Until he lost his job last year, Cardinal Pell’s responsibility was to throw light on precisely such mysterious investments.

Rival Vatican factions and their allies in national Catholic hierarchies are seizing on these and other scandals to discredit their opponents in matters of religious doctrine. 

During his reign, Pope Francis has put much effort into wresting control of the Congregation for the Doctrine of the Faith, the Vatican agency that enforces theological discipline, from the conservatives who held sway after 1981 under John Paul and Benedict XVI, his successor.

Pope Francis distanced himself from his two predecessors in 2016 by publishing an apostolic exhortation, Amoris Laetitia, which aired the possibility of allowing divorced and remarried Catholics to receive the sacraments. Conservatives reacted with fury to what would be a sharp break with Catholic tradition.

Archbishop Carlo Maria Viganò, a former papal nuncio, or ambassador, to the US, called in 2018 for Francis’s resignation. In this US election year, the archbishop has emerged as a vocal supporter of President Donald Trump and has endorsed various dark conspiracy theories dear to the radical right.

It must be remembered that the Pope, though reform-minded, is not the Holy See’s equivalent of Mikhail Gorbachev. The former Soviet leader pushed liberal reforms so far that he reformed his country out of existence. It is inconceivable that Pope Francis would take such risks, either in reinterpreting doctrine or in reorganising the Curia.

In fact, many Catholic commentators contend that the cause closest to the Pope’s heart is what the Vatican thinks of as the “missionary conversion” of societies where organised religion is stagnant or in decline. 

As he put it last year, in an exchange of Christmas greetings with Curia officials, the Christian faith “especially in Europe, but also in large parts of the west, is no longer an obvious premise of our common life, but rather is often denied, derided, marginalised or ridiculed”.

Still, Pope Francis has tried — not hard enough, secular critics say — to tackle the problems of sexual abuse and financial misconduct. These have festered ever since John Paul’s 1978-2005 pontificate. One reason why they are so intractable is that the Polish-born pope is a revered figure in modern Catholic history — in 2014 he was elevated to sainthood.

Francis, the first non-European pontiff since the Syrian-born Gregory III almost 1,300 years ago, is 83 years old. Benedict, his predecessor, resigned as pope in 2013 shortly before his 86th birthday. 

The dismissal of Cardinal Becciu suggests Pope Francis remains determined to prevail in the Vatican’s power struggles. 

But the struggles have such deep roots that there is every reason to think they will continue long after the reign of Pope Francis has ended.

The Coming Equity Shortage

Firms that manage to survive until an effective COVID-19 vaccine is widely available will have a bright future but weak balance sheets. Innovative new private-equity funds, modeled on US special-purpose acquisition companies, could provide much-needed capital – not least in emerging markets.

Ricardo Hausmann

CAMBRIDGE – Let’s be optimistic and assume that one or more of the 11 COVID-19 vaccines currently undergoing Phase 3 clinical trials are found to be safe and effective by early 2021. Let us also assume that production can be ramped up quickly, so that countries can vaccinate a significant part of their populations by late next year.

In this rosy scenario, the current “special period,” when social distancing severely restricts economic activities – from schools to universities, restaurants to airlines, concerts to sports events, and religious ceremonies to wedding parties – will last only one more year. Once social-distancing measures are lifted, pent-up demand for celebrations, social gatherings, travel, and the joys of human interaction will likely fuel strong recoveries.

But for many firms that already have endured six months of pandemic-induced disruption, one year seems far away. Firms able to survive until then – especially in emerging markets – will have a bright future but weak balance sheets. They will have experienced 18 months of negative cash flows in which their equity will have largely evaporated.

True, many central banks have provided unprecedented levels of monetary stimulus, not only by driving down interest rates, but also by purchasing massive amounts of assets (quantitative easing) and committing to maintain this policy for a substantial period of time. This so-called “forward guidance” is meant to convince banks that they should lend more at lower interest rates, because these rates are not going up any time soon.

But banks will lend only to creditworthy borrowers – and creditworthiness depends not only on the brightness of borrowers’ prospects but also on how much equity they possess. Equity acts as a sort of guarantee that the borrower is good for the money. If things do not turn out as well as the spreadsheets suggest, the company can still repay a loan because it owes less than what it is worth.

In this sense, equity and debt are complements: the more equity a company has, the more it can borrow. Banks usually require borrowers to maintain their debt-to-equity ratio below a certain limit.

So, in the optimistic scenario described above, there will be plenty of firms with promising prospects but insufficient equity to warrant more borrowing. Their growth will depend on how fast they increase their equity – whether quickly, through an injection of equity capital, or much more slowly, through retained earnings. Clearly, a fast infusion of equity will make monetary policy much more effective and the recovery much more robust.

But equity is institutionally much more challenging than debt. Debt involves the commitment to repay a certain fixed amount of money at certain dates. It is easy for a lender to know whether payment has happened and to convince a judge if it has not.

Equity, on the other hand, is a claim on whatever is left after all other stakeholders have been paid, including not only debts to suppliers, workers, and creditors, but also the costs of managers’ salaries, bonuses, expense accounts, and corporate jets. Equity holders’ claim on the firm’s residual cash flow can thus evaporate very quickly.

Preventing this and assuring equity investors requires respected corporate governance and trusted judicial enforcement. Equity holders must be given some rights such as the power to elect and remove the board, control executive pay, and limit the number of risky ventures the company enters. They should also be entitled to be informed by independent auditors about what the firm is doing, and to ensure that insiders do not trade their stock on the basis of restricted information.

But establishing a governance structure that can provide these assurances is costly. In the United States, this has fueled the rise of the private-equity industry, which prefers to avoid such costs by delisting publicly traded companies. In most developing countries, equity markets, where they exist, comprise only the largest firms, including banks, insurance companies, telecommunication providers, utilities, and a few large manufacturers. For all other companies, equity comes from friends and family.

Unless they hold a majority stake in the company, global private-equity funds that have tried to enter emerging markets since the 1990s have often seen their claims disappear. Moreover, the absence of liquid equity markets means that when they want to divest, they find themselves in a Hotel California situation, in which they can check out but never leave. This is particularly problematic for private-equity funds that promise to return capital to their investors after a fixed time period.

The social cost of these inefficiencies will skyrocket during the post-vaccination recovery. Dealing effectively with them now can be one of the highest-return investments ever.

Part of the solution should come from private-sector-led financial innovation. Private-equity funds that trade like stocks do not need fixed redemption periods and hence are in no hurry to sell. In the US, special-purpose acquisition companies (SPACs) raise their capital through an initial public offering before they know what they will do with the money, and stand ready to invest as opportunities arise. They do not have to be listed in the country in which they invest, meaning that they can list in places with better institutions and more liquid markets.

Emerging markets would benefit enormously from resolving the coming equity shortage. Family businesses therefore need to consider the advantages of accepting new equity investors and the resulting dilution of family members’ decision-making authority, lest they see competitors that do accept such funds take their market away from them.

Meanwhile, emerging-market policymakers should seek to improve regulatory frameworks – making sure, for example, that pension funds and insurance companies can invest in the new equity vehicles. And global investors, with the encouragement of institutions like the World Bank Group’s International Finance Corporation and IDB Invest, part of the Inter-American Development Bank Group, should be establishing cross-country private-equity funds.

None of this is rocket science, and it can pay off handsomely in terms of a faster recovery. That is one more reason to be optimistic.

Ricardo Hausmann, a former minister of planning of Venezuela and former Chief Economist at the Inter-American Development Bank, is a professor at Harvard's John F. Kennedy School of Government and Director of the Harvard Growth Lab.