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Metals Market Report Weekly Archive
 

The Mike Fuljenz Metals Market Report

November 2018 - Week 1 Edition

Purple Elections

The elections came out “purple,” with no massive “Blue wave” for the Democrats.  The Republicans gained two Senate seats, as expected, and the Democrats gained 30 House seats to take control there, but that was about 10 seats fewer than the pundits, like 538.com, had expected. President Trump says he looks forward to working with the Democratic House and Nancy Pelosi as Speaker, and that is probably true, as she has pledged not to seek impeachment, and Trump had faced a series of problems working with Paul Ryan’s House during his first two years, getting cooperation on tax reform, but he was opposed on repealing Obamacare, building a border Wall and other projects.

A Decade after the 2008 Financial Crisis, the Delayed “Solution” Could Cause Another Crisis

During the diversion over the 2018 campaign and the opposition’s campaign against Donald Trump, an amazing and untold story is that the “solution” to the 2008 financial crisis – now a decade old – is just beginning. Shortly after Barack Obama was elected President in November 2008, the Federal Reserve instituted a Zero Interest Rate Policy (ZIRP) and maintained it for eight full years – for the entire Obama administration – before beginning to raise rates, microscopically. They also quintupled their balance sheet from $0.9 trillion to $4.5 trillion in a few short months in early 2009 and maintained that huge balance sheet for nearly a full decade. President Obama also drafted two nearly-trillion-dollar stimulus packages.

The rest of the world did the same thing. The Bank of Japan (BOJ) flooded its balance sheet to almost 100% (98.7%) of its annual GDP, and the European Central Bank did the same thing. Taken together, these three massive central banks raised their balance sheets from just over $3 trillion to $15 trillion.

Japan and Europe also moved toward zero interest rates and then below zero interest rates. By 2016, $11.9 trillion in sovereign debt yielded below zero returns. It cost investors money to save money! Even now, $7.2 trillion in sovereign debt is yielding below-zero returns. The central banks of the world have been terrified that if they reduced their balance sheets, or raised rates, their economies would collapse.

The Fed also instituted three rounds of Quantitative Easing (QE) to add fuel to a slow-growing economy. After they ended QE1, the stock market fell 17%. After they ended QE2, the stock market fell 19%. After they ended QE3, the market fell 13%. Now – 10 years after ZIRP and their bloated balance sheet – they are finally beginning “quantitative tightening” (QT), a very slow reduction of their balance sheet, and it is causing great stock market turbulence. This is worrisome to stock market observers because Europe and Japan are also “tightening,” in the sense that the ECB is ending their version of QE and the BOJ has cut their QE program by 50%. This is happening at the same time the U.S. is raising tariffs, and foreigners (particularly China) are cutting back their buying of Treasury bonds while U.S. federal debts are rising.

The fact that the world’s biggest central banks have delayed addressing the cause of the 2008 crisis for a full decade has allowed the financial markets to levitate into another bubble, but now that all three central banks have begun “unwinding” their bubbles, the world’s stock markets have already stumbled. First, the “emerging” markets collapsed, including the Shanghai stock index, with much worse declines in South America. Then, the established markets in Europe and Asia fell. America alone kept rising, until October, partly due to a corporate tax rate cut and record earnings, but those earnings have peaked and 2019 could be bleak for the stock market with the Democrats winning control of the House in Tuesday’s election.

What’s Left to Buy?  Commodities, Notably Gold and Silver

In a process of elimination, stock markets are overpriced around the world and beginning to decline. Bonds will lose value as interest rates rise – the price of bonds decline as yields rise. Foreign currencies are collapsing since the dollar is still the “least ugly lady at the bar,” due to rising rates, while the euro and yen yield nothing. Commodities are undervalued, but crude oil is subject to a price collapse due to the prevalence of “fracking” to create new supplies. To date, only the North American oil fields have been fracked, but as the Coke jingle suggests, U.S. engineers are singing, “I’d like to teach the world to frack!”

Gold, as always, is much harder to find and mine than oil.  There is no huge industrial demand for gold, as there is for oil, which drives the technological quest for new methods of finding oil at deeper levels. The traditional gold fields of South Africa, Australia and North America are virtually played out, with smaller gold finds now found in politically volatile “Third World” nations where violence and corruption present great risk to miners. Annual gold production has already peaked and is declining each year.

For now, gold is in a “gentle, quiet” bull market, up from a low of $1,050 in late 2015, but it’s trading in a basically flat terrain this year, if measured in currency-neutral terms. Gold is down about 5% in U.S. dollar terms so far this year, but the U.S. dollar is up by about that much to the euro, or a basket of other major currencies. Of course, gold is way up (by double-digits) in terms of collapsing currencies like the Turkish lira or Argentine peso, but that is cold comfort for people living in those struggling economies.

As we have said for the last several months, now is the time to take some profits off the table with U.S. stocks – which have been living on “fumes,” on borrowed time from the Fed’s bubble liquidity schemes – and transfer that money to the temporarily undervalued precious metals and numismatic coin markets.  Call us today to hear about our special offers.

How to Target the Right Coins and Get Ahead of Demand Using Intersecting Circles

When I used to teach school, I knew I could capture the attention of young children by drawing three intersecting circles. Even today, when speaking with adults, the same lesson works, only adults like to call them “Venn Diagrams.”  In the case of rare coins, you can use three intersecting circles to represent the intersecting interests of the coin collector, the coin investor and the coin market vender, or the intersecting circle of demand between bullion coins, rare coins and the cross-over semi-numismatic coins.

 

For instance, we like to compare the markets for coins like the Type II and III $20 Liberty Double Eagles and the $2-1/2 Indian Head Quarter Eagles.  These markets have as many different collector and investor groups needing them in the future creating multiple streams of demand. We use intersecting circles of different sizes to represent growing or waning collector or investor interest in particular coins that we select for our clients. By looking at collector markets this way, we are better able to advise our customers about potential rising or falling coin prices on coins they need to complete their collections. And circles look a lot like coins, don’t they?  Call an account representative today to learn about the best values available in the market today.

 

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