Month: September 2020

There are no limits to monetary policy; gold ending the year above $2000  Kitco NEWS

Public and private pension plans face a dual crisis.

The first and most obvious threat to pensioners is that defined-benefit vehicles are severely underfunded. By one estimate, pension systems taken as a whole are $638 billion in the red.

Some are in better shape financially than others. But all pension plans will have to reckon with a second huge challenge going forward.

Namely, they are already entirely unable to meet their stated return objectives by owning conventional “safe” interest-bearing instruments such as Treasury bonds.

Fed Declares War on Savers

The Federal Reserve has effectively declared war on savers by vowing to hold short-term interest rates near zero, likely for years to come. Longer-term bond yields also plummeted to record lows (below 1% for most maturities) this year.

An ultra-low interest rate environment is survivable for investors only so long as rates keep falling, thereby generating capital gains on bond holdings that supplement their diminutive coupon payments.

But what happens when the great bond bull market, which has been intact for nearly four decades, reverses? It will be a disaster for the assets of pension funds.

They could reach for yield elsewhere by owning dividend-paying stocks. But an all-equity portfolio would be too volatile for their conservative investing mandate. Even the highest quality stocks got hammered during the virus-induced economic lockdown hysteria this spring.

Market volatility combined with rising liabilities has driven a 6% increase in total adjusted pension debt this year, according to Moody’s Investor Services.

Meanwhile, the Federal Reserve recently announced that it would be changing its 2% inflation “target” to an “average.” That gives central bankers the policy leeway to begin pushing inflation well above 2% for an extended period. (And let’s not forget the Fed also uses the U.S. Government’s grossly understated inflation statistics.)

Pension Plans CAN Hold Gold – But Only These Two Do

How can pension funds obtain protection from this threat? They can own gold.

Last week, Ohio’s $16 billion Police & Fire Pension Fund approved a 5% allocation to the monetary metal. This relatively small gold allocation provides at least some measure of portfolio diversification and could pay off in an outsized way if the gold market enters into a price-compounding mania phase.

Ohio will join Texas, through its Texas Teacher Retirement System, in having the only known public pension programs that hold precious metals.

Each fund appears to be targeting about $1 billion in gold holdings.

Others have been urged to do so, including by the Sound Money Defense League and Money Metals Exchange, whose Sound Money Index ranks all 50 states on whether they hold gold in their pension or reserve funds.

Wyoming, for example, considered and rejected the idea early last year when gold was trading at just $1,300/oz.

In a contentious Wyoming senate hearing in February 2019, the career deputy to the newly elected State Treasurer – having just turned in a staggering $300+ million loss on the state’s controversial investment in Third World debt – scoffed at gold while openly opposing his own boss who had just testified in favor of holding the monetary metal to protect the state.

Unfortunately, precious metals assets represent only about 0.5% of all savings and investments in the United States. The vast majority of pensioners and workers are thus vulnerable, like sitting ducks, to the threat of an inflation outbreak or a meltdown in the financial system.

Studies show investment portfolios that include a 5% to 10% allocation to physical gold over time enjoy higher returns, and, at the same time, less volatility.  So why do so few investment managers hold even an ounce of gold?

The bias against gold runs deep, according to Larry Parks, Executive Director of the Foundation for the Advancement of Monetary Education (FAME): “Money managers, lawyers, actuaries, accountants, and other ‘fiduciaries’ recommend pension plans to not have gold in their portfolios. They say that gold is too risky and too volatile.”

But Parks says the opposite is true: “The real reason they try to discredit gold is that gold pays no fees, which is their principal concern. Thus, they have an inherent conflict of interest with pensioners, who are by law the sole plan beneficiaries. It is a scandal how pension trustees have been misled.”

A Secure Retirement Requires Physical Backup

Those who are now, or later will be, relying on a pension as their primary source of retirement income should develop a fail-safe backup plan.

The agency tasked with backing up pension programs, the Pension Benefit Guaranty Corporation, is itself underfunded and could quickly become insolvent in the event of a rise in pension failures.

Of course, the risk of a pension program failing to keep pensioners ahead of inflation is closer to a certainty.

Conventional institutional asset allocation models will be exposed as deficient and even dangerous when their stock and bond portfolios wilt under a period of possible stagflation – an economic trend that investors haven’t had to navigate since the late 1970s.

The ultimate hedge against a regime of currency depreciation and an environment of negative real returns on interest-bearing paper is physical precious metals.

As FAME’s Larry Parks advises, “If you want a secure retirement, you better own some physical gold.”

We would add that if you want the potential for some spectacular real gains in retirement above and beyond what gold delivers, you better own some physical silver as well.

Source: Michael Ballanger for Streetwise Reports   08/31/2020

Michael Ballanger interprets the motives of the Federal Reserve and their impacts on the “haves” and “have nots” in America and beyond.

This week, the financial community around the globe was handed a “new approach” by the Federal Reserve Board of the United States that essentially flipped the middle finger at savers, senior citizens on limited pensions and proponents of sound money principles. Before I expand upon this outrage, let me expound upon the background of the current Fed Chairman, Jerome Powell.

Judging from the accolades and fawning praise showered upon this man (as the S&P and NASDAQ hit record levels fueled exclusively by Fed stimuli), one might think that he hails from the academic world, a scholar with vast experience in macroeconomic theory, or at least extensive dealings in the retail banking sector. His grandfatherly deportment portrays great studiousness and wise counsel as he does his very damnedest to convey that image with perennial gray suits and trademark purple ties. If one could take this carefully crafted persona and make a snap favorable assessment of the man who controls the retirement lifestyles of millions of global citizens, one would be making a fatal error.

This man started out as a lawyer, and when practicing law became too mundane for him, he graduated to finance, where he toiled for the bulk of his career in financing, merchant banking, and mergers and acquisitions. According to Wikipedia, “in 1993, Powell began working as a managing director for Bankers Trust, but he quit in 1995 after the bank got into trouble when several customers suffered large losses due to derivatives.”

In other words, Jay Powell is well versed in the machinations of the capital markets of the 1990s era, when financial gunslingers roamed the hallowed halls of Wall Street lighting their $50 Cohibas with $100 bills.

I have never met the man, and from all reports I have read, he appears to be a “very nice man,” proving once and for all that his spin doctors have done a superlative job selling the Powell image to the world. The problem I have is the hypocrisy that oozes from every pore in the central banking body; that they can stand in front of the average (stupid) American and look straight into the cameras and say their mandate is “maximum full employment, stable prices, and moderate long-term interest rates” while exploding their balance sheet to unheard-of levels of excess and recklessness, representing an abomination of the highest order and magnitude.

What makes this even more outrageous is that the average citizen has nothing in terms of living standard to compare to the ever-growing divide between the haves and the have-nots. Here in the summer of 2020, investment bankers and hedge fund managers are enjoying the best run in earnings and performance ever while jobs are being axed and food banks tapped out. Riots in the streets, with wave after wave of armed youths taking up causes that they find hard to describe, have become the norm rather than the outlier. Civil unrest has become a fashion statement, while the U.S. election candidates spout lie after lie of unsubstantiated allegations and accusations. The news cycle has evolved into one giant fecal hurricane, and the fault lies squarely at the feet of the central bankers, and the subterfuge and illusionary purpose they have peddled to the masses.

To wit, when I read or hear that Mr. Powell has decided to “let the economy run hot for a while,” I immediately default to the BS-meter, because what he is saying is that after all of these federal rescue dollars are exhausted and the punchbowl has gone empty, the loans held by the banks are going to become suspect. Since no amount of accelerated loan-loss provisions will cure a coast-to-coast default wave, the only recourse available to the Fed is to reflate—and that means reflate everything.

Why? It is because the Achilles heel of the American (and global) banking system is the collateral backing the oceanic level of corporate and consumer debt sitting so tentatively and malodorously on their books. All the malls and houses and warehouses, with all the plants and equipment, attached to these loans, will be rendered powerless to protect the banks if the current global depression ushers in a deflationary asset collapse. So, when Powell talks about persistently low inflation “posing a risk to the economy,” I ask “Why?”

If citizens are managing their household finances prudently, operating on a strict budget that allows modest savings every month, a moderating cost of living is a defined benefit to them. If the newer, younger members of the North American workforce are trying desperately to own rather than rent, deflating real estate prices help them achieve that goal.

However, the opposite side of that trade lies in the morbid reality that unless you have a bank there to provide a mortgage, it is impossible to own a home. The days of paying cash for a home disappeared long ago, just as building one on your own went the way of the buggy whip and pump handle industries.

The vast majority of Canadians are today enslaved by the Canadian banking establishment, and it was the unbridled support for liberal immigration policies that allowed illicit wealth smuggled in from Asia to chase house prices in the major urban centers to their current, unsustainable levels. Unless you, as an immigrant, bring windfall wealth into Canada, or are the son or daughter of wealthy parents, you are a slave of the banking system. The more mortgages that get bailed out by government handouts, the more interest revenue the banks take in and the higher the prices go, despite rising unemployment and corporate defaults and bankruptcies.

I write this today because this week we had a former stock salesman (Powell) tell the world that these new policies are designed to help the lower- and working-class members of American society, to which I would reply, “Nonsense!” Pro-inflationary monetary policies do not help the less fortunate members of the working public; they hinder them. They make food and drugs and rent and healthcare more expensive to afford, placing an inflation “tax” on them when none should be present, especially with the current economic malaise exerting Herculean deflationary forces.

Pay no heed to the former securities peddler that would tell you that “higher inflation rates” are good for the citizenry, because they are not. More importantly, understand that all central bankers and/or Fed governors are paid pitchmen for the global banking cartel, the banco-politico elite that sponsor and run candidates in elections and who are the unelected bosses lurking behind the curtain.

I get enraged watching the major financial news media, like CNBC, canonizing people like Jerome Powell and Larry Kudlow and Jim Cramer, because the real heroes that should be honored (like the frontline healthcare workers who’ve risked life and limb in hospital wards during the recent pandemic) are relegated to page 11 of the papers, or an brief clip on local TV news just before the toilet paper commercial is aired.

I do not want my elected officials making decisions that might adversely affect the value of savings amassed after decades of hard work. Whether elected or not, nobody has the right to devalue the fruits of my labor. No one has earned the responsibility of turning housing affordability into a banker’s paradise at the expense of freedom and right of choice for our sons and daughters. This is the message that is never communicated by the politically motivated central banks, which are constantly blaring “independence” but quietly acceding to “control” by their politico-banco elitist masters.

So, I urge you all to understand that the current stock market insanity is actually not; it is a living embodiment of my lifelong belief that “one may never underestimate the replacement power of equities (stocks) within an inflationary spiral.” When I see the S&P 500 at 3,500, I do not see “robust economic conditions” dead ahead; I see rapidly deflating dollars and euros and yuan and yen all fleeing fiat purgatory in favor of non-fiat assets. If “cash is king!” was the accepted mantra during the March COVID-19 Crash, “cash is trash” has taken over thanks to the panic-stricken actions of the bankers. “Save our collateral!” is heard thundering from the cavernous halls of the global banking sector, and that is precisely what Jerome Powell is executing in the guise of a “save the poor!” message of disingenuity and deception.

Now, average mutts like me have little or no sway in the wielding of power and influence. All I can do is store the fruits of fifty-five years of caddying and hockey playing and securities analyzing and newsletter writing in assets that are “non-fiat” and “non-paper.” My nest egg is nestled away in gold and silver and selected mining shares. The metal is stored away from the banking system in places close to me, while selected mining shares are in non-bank securities dealers. The only defense one has against these cretins of diatribe and disinformation lies in the ownership of gold and silver. That has been my strategy since the 1987 market crash, and all the shenanigans seen in years since.

Try your best to remember that anything that comes from the mouths of central bankers has only one agenda—protect the banks—at all costs with no provision for either prisoners or mercy. There is nothing in the “Fed Mandate” that deals with the unemployed or the homeless or the underprivileged poor; there is only the health and safety of the status quo that matters. Failure to manage one’s affairs without recognition nor acceptance of the above will result in a catastrophic loss of wealth and freedom, the latter being of greater import than the former, but alas, that is a discussion for another day.

Originally published Aug. 29, 2020.

Follow Michael Ballanger on Twitter @MiningJunkie.

Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger’s adherence to the concept of “Hard Assets” allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector. Ballanger takes great pleasure in visiting mineral properties around the globe in the never-ending hunt for early-stage opportunities.

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on for another day.

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