Reuters/Ann Saphir/3-18-2020
“A drop of that size would be steeper than in the fourth quarter of 2008 – the worst of the Great Recession – when the economy shrank 8.4%. That is assuming the Federal Reserve will continue to find ‘creative’ ways to support the economy and that the Trump administration and Congress deliver $1 trillion in fiscal support, according to the bank’s U.S. chief economist, Michael Feroli.”
USAGOLD note: “Uhm……Did this flashy convertible come with a parachute?”
Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
In light of the incredible amount of activity in the precious metals industry and back to back to back record days at Money Metals Exchange as a result of the coronavirus and tumultuous nature in financial markets, we are forgoing a guest interview this week as we work feverishly to fulfill the extraordinary order volume we’ve been dealing with. And there’s certainly a lot to talk about in this week’s market update.
Another week of wild market volatility hit all asset classes, and precious metals were no exception.
Gold continues to be the least volatile metal. And it continues to hold up better than the chaotic stock market during most trading days. But it is experiencing some downside this week.
Gold currently shows a weekly decline of 2.6% to bring spot prices to $1,494 per ounce. Its more volatile counterpart, silver, is down 15.2% this week to trade at $12.70 an ounce.
But that quote of $12.70 for an ounce of silver is only on paper. You can’t obtain physical silver in the bullion market without having to pay a sizeable premium over spot.
Money Metals Exchange and other bullion dealers have experienced an unprecedented surge in demand for silver.
The month of March could set an all-time record for sales of Silver Eagles. That will depend on whether the U.S. Mint is willing and able to supply coins to dealers in volumes that the market demands. So far, it unsurprisingly failing to keep up with demand – resulting in dealer inventory shortages, rising premiums, and abnormally long delivery windows for most orders.
Money Metals’ premiums have certainly risen sharply, but not as much as our competitors. But this is not price gouging. It’s that coin prices are reflecting the fundamentals of the bullion market – which include massive demand, production bottlenecks, and shortages.
A growing number of Americans are facing tremendous financial strain and may have no choice but to liquidate assets and raise cash.
Money Metals is paying unusually large premiums on any silver an even gold items we can buy from customers. If you are willing to sell your precious metals, please know that we will buy them — and pay you handsomely for them.
The advantage of holding physical silver during times like these instead of futures or exchange-traded instruments is clear. During the market mayhem over the past couple weeks, some exchange-traded funds began diverging in price from their own underlying assets in cascades of selling.
One exchange-traded silver product, which trades as PSLV, began trading at a discount of over 10% to net asset value. That means if you owned shares of this vehicle and had to sell, you would be getting significantly less for your shares than they are supposed to be worth.
Part of the explanation for anomalies such as these is that markets become less efficient when they are being driven by panic selling and extreme swings in the value of underlying assets. But a deeper and more troubling potential reason for the large price discrepancies is that investors may have grown increasingly concerned about the layers of credit risk and counterparty risk associated with exchange-traded products.
A rising perceived risk of default or failure could certainly cause the market to attach a discounted value to any financial instrument. That’s certainly been the case for a lot of corporate bonds and shares now that many companies are in a cash crunch.
Precious metals in physical form carry no counterparty risk, cannot default, and will never go to zero – although as we’ve seen that their spot prices can still succumb to waves of selling that grip capital markets.
Silver has gone from incredibly cheap to insanely cheap during this coronavirus crisis. One measure of just how depressed prices have gotten is that on Wednesday the gold:silver ratio closed at a record 125:1. It took 125 ounces of silver to buy a single ounce of gold!
Also, this week, the VIX volatility index for the stock market spiked to an historic high, slightly above the level registered during the peak fear period of the 2008 financial crisis. While there is certainly much more damage yet to be inflicted in the economy and quite possibly much lower stock market levels ahead, it’s also likely that many assets that were unfairly put on the chopping block this week have put in their final lows.
Even as the U.S. economy remains on virtual lockdown, demand for commodities is likely to start picking up from China. The COVID-19 new infection rate there has slowed dramatically and nearly flatlined, if you believe government reports. As, Chinese factories return to production and motorists return to the roads, demand for raw materials will increase.
It may be a many weeks, or even many months, before the United States economy returns to something akin to normal. But when it does, a massive amount of pent up demand will hit the energy sector and commodities more broadly. Consumers and corporations will also be armed with trillions of new coronavirus dollars that are set to be distributed to them by the federal government.
We have never seen a bailout attempt like this before. Certainly not on this large a scale or this wide a scope.
Hard to believe just a few weeks ago, Americans were feeling grateful to not be living under an authoritarian country like China that can arbitrarily decide to quarantine populations and shut down entire cities.
Well, Americans are now effectively living under a command economy. Political decisions will now determine which businesses are allowed to operate and which will ultimately survive. Will we ever get back the freedoms we used to take for granted? Or are we in a long emergency that will never see a return to normalcy?
The ultimate consequences of this economic lockdown and the coming helicopter drops of cash are difficult to predict. This crisis could render government deficits unmanageable, destroy Uncle Sam’s low interest rate borrowing capacity, and force officials to adopt Modern Monetary Theory – essentially bypassing the bond market and having the Federal Reserve print whatever cash the government needs.
As severe as this recent deflation scare has been, the inflationary snapback to come could catch a lot of investors completely unprepared. And as disappointing as silver’s spot price performance has been of late, it has the potential to deliver truly explosive gains when the pressures now building in the physical bullion market blow the lid off the paper market. In the meantime though, please be careful out there.
Well that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. Until then, this have been Mike Gleason with Money Metals Exchange, thanks for listening and have a great weekend everybody.
Source: Bob Moriarty for Streetwise Reports 03/19/2020
Bob Moriarty of 321gold expresses his views on the potential bailout of industries.
When the banking system was on the verge of complete failure in 2008, during the Great Financial Crisis (GFC), the world had a wonderful opportunity to do a total financial reset. All we had to do is let the failures go bankrupt. We will always need a banking system; we just don’t need a banking system riddled with fraud and failure.
Sigh! We missed a great chance to make the world a better place. Perhaps we can do better this time around.
The banks and powerful corporations who have controlled the US government for the last fifty years are in the process of trying to raid the last of the treasure from US vaults. They want their servants in government to reward them for their fraud and utter stupidity. It would be a crime of the first order to allow this.
The Congressional idiots are screeching for more government giveaways not realizing that government giveaways and borrowing is what landed the US in this mess in the first place.
It began in the summer of 1944 at Bretton Woods in New Hampshire. The conference agreed that the US dollar should become the world’s reserve currency and be directly tied to gold. Most other countries linked their currency to gold by linking to the dollar.
This gave the US a giant competitive advantage. If the US wanted dollars to pay for goods or services, all we had to do was run the printing press. If any other country needed dollars, they first had to produce goods or services and trade them to us.
The US was pretty close to being King of the World and boy didn’t we know it? The US became the Exceptional Nation because we were so wise and wonderful and rich. Actually it was merely because we had the reserve currency but why bother with pesky details?
As time went by American politicians became more and more corrupt with power. Power does corrupt and absolute power does corrupt absolutely. The US has pretty much been in a state of continuous warfare off and on since the Spanish American war. That went into high gear when Congress created the CIA in 1947. Everyone became our enemy.
Alas, wars cost money. Actually wars cost a lot of money and by the trailing days of the Vietnam fiasco in 1971 the US could no longer hand over gold bars in exchange for worthless pieces of used toilet paper.
Which reminds me, the government is going to issue a new crypto currency based on the value of toilet paper. It is to be called butt-coin.
Incredible stupidity and fraud in the sub-prime mortgage area on the part of banks caused the GFC in 2007–2009. The banks and financial institutions that caused the problem were the first to whine to the FED that they needed to be bailed out. So we did. And we had a wonderful moment in time where we should have let the bastards burn and brought marshmallows to the fire.
Fast forward to the start of the Greatest Depression. The coronavirus has destroyed the travel industry. Cruise lines are history. The major US airlines are screaming for a government bailout. Boeing claims they need $60 billion of taxpayer money or they go under.
While you can, go to the store and buy a big bag of marshmallows and fine a long stick. We need to let these bastards burn and go out of business. But we could have a great marshmallow roast while they fry.
The big four American airlines spent $43.7 billion on share buybacks in the last eight years. Stock buybacks have been prohibited since the Great Depression because we knew they were good for shareholders and bad for the economy. It was only after 1982 that buybacks were legalized again. Now the airlines want taxpayers to fork over $50 billion.
Let me point out the obvious that everyone else seems to ignore. If Delta, American, United and Southwest all go belly up, not a single flight would stop, not a single employee (except for maybe the CEO and CFO) would lose their jobs. We need airlines and when the virus is in the rear view mirror we will need these airlines and crews.
But while the shareholders benefited from $43.7 billion in buybacks, they should bear the burden of bankruptcy. If the bondholders and shareholders lose money why would we care? Let them burn down and start over. That’s what bankruptcy is for. That’s also what big bags of marshmallows are made for.
Boeing used to make great aircraft. They should, after all, engineers ran the company. But as time passed the bean counters took over. I can hear it now, “Why do we still install two of those sensors? You rarely need two, we can save $500 per aircraft if we only install one sensor.” That’s bean counter thinking. Engineers say, “It’s possible that in 200,000 hours of flight we could have a sensor go bad. We really need to be installing two. It might cost us a little more but it will save lives in the end.”
Boeing has propped up their share price by an astounding $43 billion over the past eight years. Now they are the leader of the pack in pitching the government for $60 billion in bailout money. Naturally they would get the lion’s share of the money.
Here’s something that everyone should be saying and isn’t. I sound like a lone voice in the wilderness. All governments have limits. They never want to admit that but I was in Vietnam for two years, I know governments have limits to what they can actually do as opposed to what they think they can do.
You can turn every tree in California into paper and you still cannot bail the US economy out. We have gone over the edge and have slid right into the Greatest Depression. We need to do what we can to produce medicine and to provide medical care for the millions of Americans about to come face to face with the coronavirus. Tens of thousands of small businesses are being destroyed as I write. Many will never recover no matter what the government does.
But we need to recognize right now that there are very real limits to what government can afford and should do. Bailing out shareholders of companies run by idiots for the sole purpose of enriching shareholders would be as close to insanity as you can find. Boeing will still build aircraft but will be under different ownership. All the airlines will still be flying but will have new shareholders. Banks will still do what banks need to do.
They just don’t need to do it with taxpayer money. Do you want to put your grandchildren into debt slavery on behalf of the shareholders of these companies?
If they fail, let them fail. That’s why we have bankruptcy laws. Rewarding people for fraud and stupidity is a sure road to disaster. Human stupidity is limitless. Government funds are limited.
Bob Moriarty
Archives
321gold
Bob Moriarty founded 321gold.com, with his late wife, Barbara Moriarty, more than 16 years ago. They later added 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on current events affecting both sectors. Previously, Moriarty was a Marine F-4B and O-1 pilot with more than 832 missions in Vietnam. He holds 14 international aviation records.
Sign up for our FREE newsletter at: www.streetwisereports.com/get-news
Disclosure:
1) Statements and opinions expressed are the opinions of Bob Moriarty and not of Streetwise Reports or its officers. Bob Moriarty is wholly responsible for the validity of the statements. Streetwise Reports was not involved in the content preparation. Bob Moriarty was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
2) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
3) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
