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Why the WallStreetBets crowd are able to profit from predatory trading

Textbooks say it can’t happen. But there are times when front-running distressed traders pays off



“There are no loyalties on Wall Street. When you smell blood in the water, you become a shark.” 

The sentiment—or lack of it—would not look out of place on r/wallstreetbets, the locus for a new breed of stockmarket hammerheads, which has helped push up the share prices of tech darlings and bombed-out companies to nosebleed levels, crippling professional short-sellers in the process. 

But the quote comes from a boomer, not a millennial: “Confessions of a Wall Street Addict”, by Jim Cramer, a trader-cum-tv-star. He is describing the remorseless logic of predatory trading.

It is something that is discovered anew by each generation of traders—the dark art of picking off investors who are in distress, for profit. 

Every big market meltdown is made worse by it. Every melt-up—including the current one—makes prey of those who are brave enough to sell it short. 

Those schooled in the idea of efficient capital markets will be puzzled by the latest goings-on. The textbooks say this sort of thing cannot happen. They assume there is abundant capital that can be put to work to correct prices that have got out of whack.

But in the real world, and in the right conditions, predatory trading is a profitable strategy. Prices can be pushed to extremes before they are pulled back to sensible levels. All it takes are illiquid markets, traders that are bleeding and other traders who can smell the blood.

To understand how this works, picture a world in which there are two types of investor—fast and slow. The slow-money investors are pension funds. They eschew short-term trading. When they enter the market it is in a measured way, to buy and sell when share prices look unduly cheap or dear. 

The fast-money crowd are hedge funds, which are happy to trade every day. In this world there are only two hedge funds. 

Each has ten shares in a company. Each share has an expected value of $150 in the long run, but in the short run can trade at any price.

Say the stock falls to $100 a share—low enough to force one of the hedge funds to rush to sell its entire holding, perhaps because its investors panic. The trouble is the market for the stock is not very liquid. 

The slow-money crowd will buy two shares per day but the price must get cheaper by $2 a day to induce them to trade. 

In a world without predatory traders, the distressed hedge fund manages to sell its stock over five days, with the last share going for $90.

But the other hedge fund knows the prey is wounded. So it becomes a predator. It joins in the selling. 

With only a few buyers, it now takes the distressed seller ten days, rather than five, to get rid of its shares. 

The final one is sold for $80. The predator is then free to buy back shares at a lower price than he sold them for. He buys the shares as fast as he can, over five days, driving the price to $90.

This example is adapted from the model in “Predatory Trading”, a paper by Markus Brunnermeier and Lasse Pedersen published in 2005 in the Journal of Finance. 

The model elegantly highlights the key features of financial shark attack. Markets must be illiquid (ie, large trades can move prices in the short run). 

Traders must have limited capacity, meaning they cannot sustain losses beyond a certain point—for regulatory reasons, because of redemptions by investors or because of the psychological pain.

The authors draw out some implications. 

The more illiquid the market, the more scope for predators to profit: it takes longer for the prey to escape their positions, so the price falls by more. 

The quicker the distressed trader sells, the fewer losses it makes. Any delay allows the predator to trade ahead of (front-run) the prey. 

The more predators there are, the less profitable predation is.

How does the WallStreetBets episode fit this template? The predators are acting in concert, so their strategy may be more effective. Better still, the prey are short-sellers, who bet on stocks falling. 

They are especially vulnerable: the more the price rises, the more they lose. 

Their potential losses are unlimited. And their positions are often common knowledge.

This is why a lot of hedge funds put their trades through several brokers in an attempt to mask them. 

Even so, the incentive for brokers to front-run a struggling customer is hard to resist—and not always resisted, as Mr Cramer recounts in his book. 

“There was something about a dying client that sent these brokers to go to the untapped pay phone downstairs—all brokerage calls are recorded—and tell their buddies.” 

There really are no loyalties on Wall Street.

Texas Weather

Thoughts in and around geopolitics.

By: George Friedman


Somewhere I heard the saying that climate is what you expect, and weather is what you get. I live in Texas and we certainly got weather this week. 

The climate of Texas reflects the state itself: Tornadoes, droughts, weeks where the daytime temperature never goes below 100 F, and gully washers – sudden downpours that fill the limestone aquifers below our property to overflowing and fill our gullies with roaring water. 

My favorite happened a couple of years ago when days of a biblical rain came to celebrate itself. Our house is on top of a hill, and thinks itself above much of this. 

But when we came out and went down our long and steep driveway, we met a new property covered with limestone rocks that have, over time, decided to leave for unknown reasons. It left remnants to remind us who really owns Texas.

But we have never seen anything like what happened – and is still happening – this week. Temperatures were a tad above zero, rains fell and froze. Then came snow that covered the ice. 

In the more than 20 years I have lived in Texas, I have never seen this. 

Previously, I lived in upstate New York, central Pennsylvania and Maryland, so like old memories of Washington, D.C., bars, I have a point of reference. 

But I thought I had left the places where the cold can kill you. 

We watched the herd of white-tailed deer that infests our property walking around (or lying down to cover delicate parts) and reflected that God on the whole does not create challenges that you cannot overcome.

Fairly quickly, the philosophical ruminations stopped, as power went out all around us. 

For reasons incomprehensible, it did not go out in our house, but we were the exception. 

Almost everyone we know has lost their power and water, including some well-connected people who undoubtedly thought they could bargain themselves out of this. 

But they were sitting in their cars, recharging their phones to tell us that they hadn’t had power for days. 

I was tempted to gloat, but in a war, when the dead and dying are all around you, you realize that you are alive not through any virtue but through either randomness or God’s will. 

And this is not a trivial event. Days without power, with temperatures below freezing, roads impassable and inadequate food, are not a joke.

Since this is America, and especially since this is 2021, someone must be blamed, for incompetence, corruption or perhaps a vast conspiracy. 

Stuff happens, but we want to blame someone. 

And in fact there is kind of someone to blame.

There are three electrical grids in the United States: the eastern, the western and Texas. 

Yes, Texas refused to join the national grid because it didn’t trust the federal government and because, well, they’re Texans. 

That means that drawing on the other grids is, if not impossible, complex. One much-discussed but somewhat exaggerated problem concerns wind power. 

Yes, ladies and gentlemen, Texas electricity is fairly reliant on the super ecological wind. Now, the problem is that the windmills were showered with freezing rain, and the mechanisms that turn (remember, it’s a windmill) froze, and Texas had not made any plans for the preposterous idea that they might freeze, so they contained no heating elements.

We all know now that this was stupid, and we are all certain that we wouldn’t have made that mistake. 

It’s easy to say now that the people who ran the grid should have spent large amounts of money in expectation of near-arctic weather in Texas. 

So the plan became that there would be rolling blackouts, with some neighborhoods losing power for 40 minutes, then the next and so on. Well, that didn’t work. 

The power in a neighborhood went off and stayed off, and power did as power does and didn’t heed the rapidly invented plans of the energy companies. 

So we will now have investigations, recriminations and possible indictments. (Someone must have made a lot of money from the blackout, right?)

We can all speak of the climate, but we live with weather, and weather can surprise us and break our ability to plan. 

Weather like Texas is now seeing is, if not unprecedented, at least unknown in the memory of most Texans. It is common in the north, but then they don’t have to cope with weeks of temperatures in the triple digits. 

If they got that they would be stunned, and investigations would be readied on why they didn’t plan for it.

Nature is disorderly and willful. God humbles us with what may happen that we never planned for, and was once inconceivable. We will recover from this and likely make changes, but the fact is that nature always has something new to offer us, and our ability to resist and survive is what makes us human. 

I am sitting in a heated house, not built to keep the temperature at comfortable levels in freezing conditions, but survival and comfort are very different things. There are large numbers of people confronting the lack of power in northern-type cold, unable to go to a hotel – some don’t have the money for a hotel stay, and the hotel likely wouldn’t have power anyway. 

There will be deaths, usually of the abandoned elderly. There may also be hunger, and that affects small children. 

The worst should be over shortly, but this is not the end.

Nature has enormous power over our lives, and it uses that power capriciously. And we are now in a time when nature wants to act. 

This is only Texas (never use “only” here), and it is only some cold and precipitation. 

Yet it can disrupt our lives and even kill. Climate may be under human control, but the weather is not. This weather came from nowhere, has not explained itself, and will leave when it is ready. 

And all our planning, all our task forces, all our certainties, and all our demanding makes no difference to the weather. It comes when it wants, and goes when it will. Even in Texas.

P.S. To top it off, we just received an urgent notice to conserve water to prevent a shortage

Tesla and Bitcoin: What Could Possibly Go Wrong?

Elon Musk’s bitcoin purchase for Tesla is another warning for investors in the wake of GameStop mania

By Charley Grant

Social media posts by Tesla boss Elon Musk already have helped drive bitcoin’s price to a record. / PHOTO: ALY SONG/REUTERS


GameStop mania was a wake-up call, but now the capital markets have truly reached ludicrous mode.

Electric-car maker Tesla TSLA +1.78% said in a securities filing Monday that it has purchased $1.5 billion worth of bitcoin and that it expects to begin accepting payment in the cryptocurrency for its products in the future. 

Tesla shares and bitcoin both traded higher after the announcement. 

This follows social media posts by the auto maker’s influential boss, Elon Musk, that already had helped drive bitcoin’s price to a record. 

The announcement added roughly $100 billion to the combined market value of bitcoin and Tesla on Monday.

The investment is more than symbolic for the company, being equivalent to Tesla’s research-and-development tab for 2020. 

And while uniting two of the most popular investment themes under one roof is undoubtedly a winner today, the decision introduces even more risk to owning what is already one of the most speculative stocks of the current bull market.

As Tesla itself said in the filing, prices for digital assets such as bitcoin have been volatile in the past. 

Cryptocurrencies are a fairly recent development and their long-term adoption by consumers, investors and businesses is highly uncertain. 

That adds to the speculative fervor already gripping Tesla’s stock price in a feedback loop. 

Indeed, the manager of the most popular active fund recently, Cathie Wood of ARK Invest, has made big bets on both Tesla and a trust that owns bitcoin, fueling a record pace of inflows.

At a market value of about $800 billion, Tesla trades at about 6.5 times the combined value of Ford and General Motors, despite controlling a small fraction of the global auto market. 

And Tesla lately has been losing market share in Western Europe to competitors including Volkswagen, which has begun to compete aggressively in the electric category. 

The news of Tesla’s bitcoin investment eclipsed a negative headline for the company Monday about quality issues identified in the important Chinese market.

Long-term adoption of cryptocurrencies by consumers, investors and businesses is highly uncertain. / PHOTO: ERIC GAILLARD/REUTERS


While digital assets are relatively new, a tour of financial history suggests similar speculative use of an industrial company’s funds aren’t—and they have ended badly. 

About a century ago, General Motors required a bailout due to the stock speculation activities of founder William Durant. 

In the 1980s, widespread corporate speculation on Japanese land prices helped drive a stock bubble that eventually collapsed.

Those cautionary tales aren’t likely to concern investors who are enjoying a giant stock-market party. 

But Tesla’s monetary experiment, coupled with the individual-investor-driven stock-market madness of recent weeks, should have investors concerned that the consequences of staying at the party too late will be worse than leaving early.

The Limits of the EU-China Investment Agreement

The new EU-China Comprehensive Agreement on Investment will eventually be judged by its implementation and the concrete steps China takes to fulfill its promises. If European firms do not perceive any improvement, and China makes no progress on labor standards, the pact might come to represent an empty gesture.

Daniel Gros


BRUSSELS – During the last days of 2020, the European Union and China finalized a Comprehensive Agreement on Investment that they had been negotiating for seven years.

In the weeks since, the CAI has attracted a lot of Western commentary – much of it damning. But now that the full text of the agreement is available, it seems that critics may be overstating its importance.

For starters, some argue that the EU is relying too much on the Chinese market to keep its economy growing. But trade and investment data do not bear this out. In 2019, China was only the third-largest market for EU goods exports. 

The United States remains the EU-27’s most important trading partner by far, followed by the United Kingdom.

EU exports to China are actually somewhat lower than one would expect, given that China’s GDP (even at market exchange rates) is now close to 80% of that of the US, whereas EU exports to China are only about 50% of those to the US. 

Moreover, the relative importance of the US and China as export markets for the EU has not changed much over the past decade. 

This means that the EU’s transatlantic exports have increased almost as quickly as its trade with China – despite China’s much higher GDP growth rate.

The same is true of the EU’s trade with China’s democratic neighbors. Between 2009 and 2019, for example, EU exports to South Korea increased at almost the same rate as those to China. 

And the intensity of EU-South Korea trade is twice as high as one would expect, given that the EU-27 economy is about ten times larger than South Korea’s.

From a trade perspective, therefore, Europe is not “betting on China.” On the contrary, bilateral economic relations are somewhat weaker than the Chinese economy’s size would imply.

This is even more apparent when it comes to bilateral EU-China direct investment. 

The EU’s direct investment in the US is almost 15 times larger than its investment in China, while Chinese investment in the EU amounts to about one-twentieth of US investment. 

And bilateral investment flows have recently stagnated at low levels, with no substantial new investment by a Chinese state-owned enterprise in Europe over the past year.

The EU’s new foreign-investment screening mechanism, which is de facto aimed mainly at China, must also be seen in the context of these numbers. Current Chinese investment flows into the EU are around €11.7 billion ($14 billion) per year, implying no threat to a €15 trillion economy. 

And affiliates of Chinese firms employ less than 300,000 workers in the EU, a tiny fraction of the bloc’s overall workforce of about 220 million.

Furthermore, a look at the CAI’s details reveals that, belying its name, the agreement is far from comprehensive. The main concrete benefit for European firms is the partial opening of China’s automotive and financial sectors. 

But the accord’s main provisions reiterate pre-existing commitments or promises of “best efforts” in areas such as regulatory transparency and social standards (including China’s pledge to continue working toward ratifying theForced Labor Convention). 

The dispute-settlement mechanism also remains vague, and mainly enjoins both sides to consult and reach an agreement.

Critics of the CAI neglect to mention that the EU had little leverage because investment in Europe is already mostly liberalized. The EU therefore could not offer meaningful improvements for Chinese investors. 

And you if you have little to offer in a negotiation, you cannot expect much from the other side. 

Under these circumstances, we should not have expected an agreement that addresses every social or human-rights problem Europeans see in China.

Lastly, many have criticized the EU’s conclusion of the CAI on geopolitical grounds, for handing China a diplomatic victory just when a new US administration with a more positive transatlantic outlook was preparing to take office. 

But it is ultimately an international agreement’s substance that determines its geopolitical impact.

We learned this in March 2019, when, to great fanfare, Italy signed onto China’s Belt and Road Initiative (BRI), a transnational infrastructure investment scheme whose official aim is to bolster economic relations between Asia and Europe. 

At the time, many questioned the geopolitical wisdom of Italy becoming the first G7 country to join the Chinese-led initiative.

But reality set in rather quickly. All Italy had done was sign a memorandum of understanding that had no impact on trade or investment, as one would expect from a vague declaration of intent to strengthen economic ties. 

Disappointment at the lack of tangible benefits has turned a geopolitical victory for China into a defeat, with the same Italian minister who previously championed the BRI now taking a much more critical position toward China.

Likewise, the CAI will be judged a few years from now by its implementation and the concrete steps China takes to fulfill its promises. 

If European companies do not perceive any improvement, and China makes no progress on labor standards, the CAI might come to be viewed as another empty gesture.


Daniel Gros is Director of the Centre for European Policy Studies. 

ENDING TOXIC RELATIONSHIPS, RETURNING TO GOLD

By Matthew Piepenburg


Breaking Up is Hard to Do

In markets, as in love, it’s obviously hard to let go of something familiar yet clearly not working; but as all sober romantics eventually discover: Toxic relationships hurt.

As for our toxic yet often enjoyable ride through the post-08 markets, it was easy to be seduced by the surface of things, as low rates, FAANG-driven tech seductions and a now unlimited money printer seem to make an otherwise ugly financial system appear attractive.

But a bad love is still a bad love, and a bad market is still a bad market, no matter how much lipstick the central banks put on a securities pig.

Nowhere is this truer than in the global and US credit markets.

The Courage to Walk Away?

Many investors, like star-crossed lovers, still feel the need to hold on to illusions, nostalgia and thus bad unions (and unfaithful bond markets) despite all the danger signs lurking beneath debt-soaked balance sheets.

In the end, however, it takes a kind of personal courage to shed illusions and embrace cold math.

But we are all, as Nietzsche warned, human, all too human. We love our illusions. We stay too long in toxic relationships.

As such, we are prone to prefer fantasy over reality.

Like hopeless romantics chasing shallow and vapid loves, many investors are chasing empty promises (and yields) from an equally empty bond market.

Goethe’s Warning?

In The Sorrows of Young Werther, von Goethe tells the 1787 tale of a young artist placing his love and blind faith in a woman who otherwise lacks the depth of his generous soul.

In the end, Werther wastes his life chasing the equivalent of an empty cup.

Speaking of empty cups, the U.S. bond market comes immediately to mind, and those who place their trust in it are doomed to become a large group of market “young Werthers.”

As Bob Prince, co-chief investment officer at Ray Dalio’s Bridgewater fund warned over the summer, investors have fallen foolishly in love with bonds and negative yielding returns despite obvious signs of deception and toxic love.

COVID conditions and market risk have sent more investors into the “safe arms” of bonds as a traditional place to “store wealth.”

But with the Fed buying bonds as well as repressing rates, the net result is that investors are literally paying to lose rather than store their wealth.

Adjusted for inflation, U.S. Treasuries produce negative returns.

Stated otherwise, many investors are falling for the wrong gal…


But toxic love is not just an American problem; it’s global, as the following chart of negative global yields confirm:


Folks, if there is no interest rate, that means there is no discount rate on cash flows.

This means the reward of holding bonds is blatantly asymmetric to the risk of losing money. 

In short, investors are buying lots flowers but getting no kisses.

Alas, time to break up.

It will take years, not days, for the economy to return to “normal,” which as we’ve warned elsewhere, is itself an extreme irony, as “normal” before COVID was anything but normal…

In other words, even going back to pre-COVID markets is nothing to get excited about. 

The love story was bad then, and bad today. Why fall for it?

Inflation’s “Mind-Blowing” Dark Side—How the Love Affair (and Party) Ends

Although the pundits and mad scientists behind MMT still believe inflation is an extinct remnant of the past, should the US see even a slight rise in otherwise bogusly reported CPI data, such inflation would be devasting to bonds, or as Prince described it: “mind-blowing.”

WHEN, not IF, inflation returns and investors finally end their bad love affair with bonds, then bond prices will fall, which means bond yields will rise—which means interest rates will rise too.

Furthermore, as the headlines push the virus vaccine, stocks could see a temporary glow as investors dump bonds to chase topping stocks, sending yields—and hence interest rates—higher.

But as informed investors know, rising yields and rates are to record-breaking debt bubbles what shark fins are to a surfer—really bad news.

Markets driven by debt eventually die (and I mean die hard) when the cost of servicing that debt (i.e. interest rates) becomes too high.

Every debt bubble comes to an abrupt end as inflation slowly rears its all-too-real head.

Still in Love with the Illusion of No Inflation?

But again, love-sick folks often ignore the pig beneath the lipstick.

And bond-enamored investors often ignore the inflation risk beneath these markets.

For me, the inflation vs. deflation dialogue is not a debate, it’s a cycle—one following the other.

Inflation, alas, is coming, as is the big, bad “bond divorce.”

The Deflation Camp

As for deflation, clearly the pandemic and its global policy response has devastated world economies, including the U.S., thereby adding to a low-growth deflationary trend.

Low economic growth (for which stimulus is having an increasingly lower multiplier effect) reduces money velocity, and adds to the deflation argument in a nation whose growth is guaranteed to stagnate given current (and shameful) debt-to-GDP levels.


Those in the deflationary camp will also (and rightfully) argue that Fed critics have been calling for inflation for over 12 years, and it has yet to surface.

Furthermore, the pandemic has created savers not spenders—or even more likely, lots more people who are simply tapped out (i.e. broke) as wages remain stagnant or evaporated.

Either way, that means less spending, less velocity, and hence less inflation. Fair enough.

The Inflation Camp

But as for the inflation case, the easiest place to start is with the CPI scale used to measure it—which is about as bogus as 42nd Street Rolex.

Using the CPI methodologies of the 1980’s rather than the watered-down version which the Bureau of Labor Statistics employs (manipulates) to report inflation, we are in fact far closer to 10% inflation today (blue line) than the sub 2% levels “reported” by the fiction writers in DC (red line).


A vaccine “re-start” is also predicted to be temporarily inflationary if and when “pent-up demand” resurfaces. But this is debatable, especially given the tissue damage already done to the global economy.

China is an inflationary factor too.

It’s “cheap labor” is less cheap, and supply-chain damage unleashed by the pre-COVID trade war and then the current COVID disaster has sent prices along that chain upward, adding to inflationary tailwinds.

But the obvious and real inflationary factor remains the central banks, whose money printers are effectively on an auto-pilot to insanity.

Price inflation pushes rates higher, forcing more “yield curve control” from the central banks, which just means rising money printing, a sinking dollar and yes, rising inflation and tanking real rates.

In short: the perfect environment for gold.

But others will say that even the insane levels of current and future central bank money creation do not lead to increased money velocity.

Instead, those printed dollars are absorbed by the ever-liquidity-thirsty repo and Euro-Dollar markets, or self-contained within the highly inflated risk asset markets.

But this ignores the fact that central banks are slowly turning from lenders to spenders, making direct ETF and security purchases rather than “loans.”

As discussed recently, such “spending” slowly increases velocity and hence inflationary winds.

Like Hemingway’s description of poverty, the inflationary forces which follow “begins slowly at first and then all at once.”

Thus, rather than academically debate inflation vs. deflation, one must consider common sense as well as distorted rather than accurate data.

Ultimately, and regardless of how inflation is reported or argued, the Dollar, Euro, Pound Sterling and/or Yen in your wallet is being debased by the second when measured against physical gold.

Again, this is a graph worth repeating over and over and over.


How the Love Affair with Bonds Turns into One Big Regret

First, and as usual, the US Treasury Dept, having so little national income growth (i.e., GDP) to speak of, will do what it always does to “solve” a debt crisis: Issue more debt.

This means more long-term Treasury Bonds (IOU’s) are being issued minute by minute in DC.

After all, we have bloated budget deficits to “pay for” (i.e. deficit spend/borrow/print away).

But who will want to buy those Treasury bonds if their real return (i.e. inflation-adjusted return) is negative?

Well, the short answer is less and less informed investors outside of the US…Which means the Fed will be the buyer of last resort.


This also means Uncle Sam will have no choice but to sweeten the dinner date by promising higher yields/returns to his star-crossed investors.

Ah the sweet lies and petty games of a toxic love…

This, however, also puts Uncle Sam (and hence the bond market) into a viscous circle of almost comical proportions.

That is: a) DC needs to raise yields/rates to attract other bond buyers (suckers), yet b) if yields/rates rise, the government can’t afford the debt cost.

See the dilemma?

Falling Back in Love with Precious Metals

Of course, we already know what the US will do to pay for this increasingly painful debt burden—namely: Print more money…

Printing more money, in turn, simply means that the purchasing power of the dollars sitting in your current bank account are getting weaker by the second as the dilution effect of unlimited QE does its quiet yet dirty work on your trust and currency like a secretive and toxic partner in a toxic love gone bad.

The obvious remedy in this toxic relationship with bonds, central banks, inflation “debaters” and false hope is to do what Young Werther could not do—that is:

Wake up and then break up with your toxic partner and find a new one.

And what better partner than gold and silver, as precious metals are absolutely precious to broken-hearted currencies diluted by years of dishonest, artificial, low-rate supported bond markets and a national and global debt bubble (ripping north from $258T to +$280T in less than a year).

That just screams of toxic.


We’ve been talking about gold for years, not weeks. But Goldman Sachs and others will not.

Why?

Simple: There’s no big fee-churning trade gains for the big banks to recommend physical gold.

So much for “fiduciary care.”

Furthermore, the Fed, BIS and all the major central banks know that rising gold prices are embarrassing proof of their failed monetary experiments and dying currencies.

To mask such shame, the bullion banks openly manipulate the paper pricing of precious metals through deliberate cheating in the futures market.

Bullion banks are shorting over 100 million oz of silver on the COMEX to artificially influence its price, hoping to see gold follow this manipulated trend, despite no liquidity in the actual metal itself in London.

Fake paper is the COMEX tail wagging the physical metals dog—but it’s only a matter of time (and illiquidity) before that dog bites back…

But I know…no one likes to feel cheated or to erase those fond “good-time” memories.

The “young Werthers” cling to their conditioned faith in, and love affair with, toxic stocks, bonds, tech names and, of course, our rich central banks and their magical, Santa Clause-like powers to solve every problem with a new bag of debt and fiat currencies.

Investors in physical gold and silver, however, are not fooled by the current surface of things or the sweet lies of a toxic market.

For those who see bonds as a “safer haven” or equities as “miracle solution,” it’s time to face facts and break up with such dishonest affairs of the wallet.

A Chart is Worth a 1000 Words

In case you still need more signs of this toxic relationship between investors and deceptive markets, just consider the following simple warning sign…


The above data confirms that the market value of the world’s equities has once again risen above the dollar value of the entire world economy.

Read that again and let it sink in.

If there was ever one warning sign of an over-heated (i.e. cheating and toxic) market, this is it.

And with greater than $18T worth of sovereign bonds offering negative yields, the bubble you’ve fallen for is even more of a femme fatale than the chart above warns.

In short, be warned—this market is toxic.

Meanwhile physical gold, that “barbarous relic” stands patient and smiling in the clever corner of honest history and far-sighted investing.