I read an article by Ted Butler yesterday here. He made a comment which I find completely fascinating, but something I also had noticed and was not able to articulate this well…
He first led off with a discussion of nickel and the LME. He then went on to write…
“Nothing I see indicates any sudden physical oversupply of crude oil, or grains or metals – yet prices are collapsing, as if there was physical oversupply. That’s because the managed money traders trade on price momentum, not the commodity’s actual fundamentals”
It is fair to assume that in a “normal” market, you can figure that with a recession is coming, the economy is overheated and with this, supply chains had been ramping up products to capture maximum profits at higher prices. By shorting this, you would be then expecting prices to fall as consumers buy less goods. Meaning, you have oversupply of things on shelves, and with this, you expect the demand for raw materials to dwindle. You can call this a “recession” trade.
However, what Ted pointed out is that there is no real physical oversupply. There is something called a bullwhip effect with the disrupted supply chains. However, this recession is a product of the government jawboning an economy into thinking they will a) raise rates to beat inflation and b) run down their balance sheets.
Meaning – the root issue right now has been a supply-side crunch, but this was driven by massive liquidity in the system. They uncorked the bottle. And, it seems quite apparent to anyone watching with any sense of economics understanding, that they don’t know what they are doing. To me, they feel they can put the genie back in the bottle. There’s only one thing they can do in order to do that: crash the economy. By doing do, the demand destruction can be so devastating that it could and should result in price collapses. Complete and utter demand shock. More on this on the Happy section.
What is quite interesting though, is how Ted points out that it seems a lot of these things have the “silver disease” where you are having people short this stuff with no PHYSICAL signs of oversupply. I had once heard that Ukraine made up 25% of the world’s wheat. Crude is not being pumped more out of OPEC, and it seems nat gas and Europe is in a pinch. This meant problems with fertilizer, which would and should lead to crop harvesting issues later this summer and fall. Oil prices rising don’t mean that I can work remote anymore, either – with the COVID trade disappearing, most have been ordered back into the office. This demand will not subside. The continued call for solar panels and EVs is unrelenting to the silver demand. All the while, it’s trading as if no one wants it, while Apmex has 40% premiums on Eagles because no dealers can get their hands on silver being sold back.
I think we are in completely unchartered territories. There may be a 75 bps hike coming for July, but this is an attempt to not only be hawkish, but it is their last opportunity to show they know anything. We are being warned inflation may come in hot, yet again, and with this, it may be demonstrating their rate hikes are having little to no effect on inflation.
Another print of 8+%, they have decisions to make:
- Thank you sir, may I have another – hinting at another 75 bps hike after July and perhaps creating a situation where they literally destroyed the economy by forcing rates up during a time where physical shortages are apparent – check your pasta and peanut butter isles at your local stores.
- Call it a day and blame it on the Russians. To me, this is the path they HAVE to go when they realize that the crops that are coming are for shit. All of those shorts on the COMEX could be wiped out. All of them. This also could have the effect of destroying the COMEX. WHO is selling physical stuff at lower prices when all input costs are massively higher? No one but speculators, as Ted seems to point out.
This may have the net effect, along with the gold rigging trial, of getting in peoples’ heads how these things are being rigged. I can’t believe people are shorting grains when we have concerns about the upcoming crops. Who is shorting nat gas when we are promising LNG to Germany and others? Who is shorting oil with people coming back to work and the Saudis et all not having the ability to increase production?
Big picture – every model these idiots have are based on 40+ years of globalism, low interest rates, and falling prices. Yet every day we are hearing of a stronger BRICS+ entity shaping – with the Saudis, Iranians, and other energy producers interested in the BRICS. Will these entities actively de-dollar?
IF globalism is deflationary, wouldn’t de-globalism be inflationary? Meaning – wouldn’t you expect all commodity prices to rise in this environment? Yet people are speculating on price drops?
The pivot seems sooner rather than later, because if we do not pivot, we risk having the dollar get so strong that we put EUR/JPY/GBP in the dirt. And, all of that inflation we exported? All of those countries are starting to have all kinds of problems with uprisings, as many predicted when food prices start making up 35% of your paycheck.
In fairness to those shorting things – could they be shorting based off of this? Note – grains don’t make expensive coffee tables, so perhaps selectively shorting the right commodities would be a better play than shorting all commodities.
On the flip side – what if the US consumer is tapped out? What if they maxxed out credit cards, borrowed against their homes?
So – I agree with Ted in principle – but mostly as it is geared towards no real physical oversupply in grains, PMs, and energy. However, these indicators worry me in respects to things like lumber and base metals. If you look at the grocery store shelves, the prices of meats have gone up too – but everyone is buying the pasta and leaving the protein. So hogs and beef could perhaps be reaching some sort of oversupply – BUT their energy, labor, and feed costs are still stupid high, so they cannot lower prices. Meaning if you are shorting beef, you might get blown out because you risk the supply of food by taking prices too low.
Or risk the supply of silver to solar panels and EVs by taking silver prices too low.
I do have to put an asterisk here, as Ted had talked about 800-1200m oz sold short, based on the OCC report. You had some try to explain some other derivatives this could be – Bob Coleman demonstrated a fund that I believe was BoA or Citi which was a derivative of the value of SLV/GDX. So Ted may be in the ballpark on a lot of this, but the levels of precision are not 100%. It’s not his fault – all of this stuff is opaque and we have to draw a crime scene photo and chalk line given the evidence we do have. That being said, I agree with his thinking that a lot of this we are seeing with commodities dropping is perhaps spec short algos based off of numbers that may be feeding them incorrect information.
Happy Times ahead
The Happy Hawaiian posted the above yesterday, and it seems to indicate the pivot is coming soon. There was a comment that seemed to indicate the yellow line goes up and we face a Great Depression, or the yellow line goes down and we face a hyperinflation.
Here’s the chart in closer detail.
What this basically shows you is a pain point – if I could interpret – where a rate hike cycle ends due to a problem with the amount of debt we have and being able to service that debt. IT IS POSSIBLE that they continue the rate hikes and do the following:
- Raise the debt limit, again
- Run multi-trillion dollar deficits continuously, forever (this has currency implications below)
- Raise taxes on a shitload of things (this has severe economic implications)
While Happy’s chart indicates a pivot could be soon, we cannot rule out the three items above allowing the yellow line to continue upward.
I also have to point out that Happy has been scary accurate on CPI prints. This month he sees a record number again.
So if we have been hiking for months….stock market falling….commodities prices rigged lower on specs…and inflation is still rising, someone has to be wrong. Badly.
Stock market to crash another 20-30% from here by September OR we call it a day, blame Russia, and ease interest rates while still committing to try and take the balance sheet lower “in times ahead”.
The falling dollar
Brent Johnson is having a good month or two, where the DXY is at 108 and the highest since 2002. Many of us…I mean MANY of us, felt perhaps 97 was the highest it would go. However, I did not expect Europe and Japan to continue to print to oblivion.
When I say the dollar is dying, well, shit…I don’t mean the DXY. I felt it would start to show up in the DXY and fall to perhaps 60 or 70, but what we are seeing is crazy…
This guy seems to think the EUR falling has to stop any day now…
All of these things measure the DXY – that is, the comparison of the USD to a basket of EUR/JPY/GBP.
I get it. These are the largest economies outside the US.
But how about the USD as related to the Ruble? You probably don’t care, due to the size of the Russian economy to ours. But Russia has very low debt compared to us. I don’t see everyone tomorrow rushing out to buy Rubles and sell dollars. No. I get it.
But something is changing in the world, and most of you are too blind to see the division of two major blocs coming out…
- The “West” with US, Canada, Europe, Japan, and Australia
- Everyone else
And while number 1 above has the most wealth, I believe this wealth is being moved to “everyone else”. It may be a drip. But ask yourself how many dollars are out there in reserve, worldwide. How much did we print and hand out. How much of our inflation did we export?
I believe over the next few years, you will see things like the Saudis being added to the BRICS group – I don’t think there’s a “card” you get like AMEX or the like, but it seems like a trade group which will also potentially have a currency basket formed – and this could have a pairing with the USD. And, you would see the USD going down over a decade against this. Why?
- Those BRICS+ countries with USD may then ask to settle in their own currencies, a BRICS currency, or a basket of BRICS currencies – or gold. India now to settle in Rupee. Saudis accepting Yuan for oil. This lessens demand for USD.
- BRICS+ countries will sell their dollars for goods. What they witnessed was a colossal fuck up by our admin by freezing Russian reserves, and seizing them. This then used the world reserve currency as a compliance weapon. And, if the COVID vaccine mandate didn’t give some of you the scares about compliance, well, other nations told them to fuck off with the jab – metaphorically speaking of course. I believe dollar reserves they have, which are being devalued at perhaps up to 17% per year, will be sent back to us for goods/services. This will flood our shores with USD.
- De-globalism. IF we had printed dollars to give to the Chinese and they send us cheap goods, they would then hold these dollars and spend around the world on goods. They would continue to keep their currency cheap against us by not selling the USD for Yuan. Assume a world is coming where we have to sell our dollar for Yuan (etc) to buy their goods. I believe THIS world is not far away. Likewise, we will have to make goods here, more, and this decreases the overall amount of USD in the world system. This could lead to a hyperinflation at home when the costs of goods go vertical and wages need to go vertical to keep up.
- Debt. With $30T in debt and 17% inflation, according to shadowstats, who the fuck wants to buy our 2.8% 10Y? Let me get this straight. I can hold dollars and lose 17%, or I can convert those dollars and by guaranteed to lose 14.2%, OR, I can buy your gold which is artificially suppressed against the USD and soon to appreciate in USD that I can spend this around the world now? You are at $30T and you cannot raise the rates of Treasuries over 3% without risk of defaulting? No thank you. I will sell the debt I own and convert it to your cheap gold which I can then give to the Russians in an untraceable format to buy energy 30% cheaper from them than you.
Today, this is Brent today. Forgive my crude meme.
I listened to a 2 hour debate between Peter Schiff and Harry Dent. Peter basically said, “all of you guys saying the dollar is going higher all see gold going much higher in the end. We BOTH agree on the end where gold is high. Where we differ is you are saying the dollar is going higher first, and I don’t care – I’m positioning for either gold going higher now or gold going high later”.
Could the price of gold in Yen here be a forward-looking indicator of the gold price to come?
It’s hard to argue with Schiff’s logic here. Even Brent knows gold is eventually moving up.
But the trillion dollar question is…..
- Do we see the DXY hit 120, 130, or 150 as the EUR/JPY/GBP are forced into trash, the US stock market tanks 80% OR
- Do we see a point nearer term where the USD reverses and gives back gains against the EUR/JPY/GPB and preserve markets, then shoot gold up in USD like the gold/JPY chart indicates? OR
- Do we see the BRICS+ nations forming a currency basket and this is traded against the USD and while the DXY could be 150, it becomes trash against the BRICS+ basket which promise commodities backing? OR
- Do we see an awakening in the West where we remove the chains of our commodities via COMEX to allow for true price discovery, thus allowing Western-based countries to produce more commodities at higher prices, thus staving off a BRICS+ push?
So to me the DXY as a measure to show dollar “strength” is somewhat silly if we are not including the other half of the world in this. I get WHY they do it, but as BRICS gains a lot of traction – the DXY rising is only showing how weak the Euro and Yen are to the ruble – as they need to sell Euros and Yen to buy ruble to buy energy.
Check out the yen against the ruble. 1.15 to .4289 now. A loss of 63%
Or the Euro to the Ruble – 147 to 58, a loss of 89 or 61%
Then the USD, where it’s 55% loss.
So you have energy problems in Europe and Japan forcing them to sell their currency to buy ruble, strengthening the ruble against them. Likewise, the US is raising rates where Europe and Japan are in never never land. Japan is still doing YCC.
And AS the DXY is going up, based off of poor energy planning by Europe and Japan, along with the dollar losing traction as a world currency – all of the algos see the DXY going up and are selling into commodities that do not have physical surpluses.
Get ready folks, this is going to be a shit show.
I saw the DXY going down in a dome pattern. I did NOT see this – which is looking more and more like a blow off top. Given Happy’s chart and the implosion of the EUR/JPY, it stands to reason that at some point in the near future, we may see things that reverse this trend.
See…to me, commodities are driven down in a world with globalization. This is the key variable most are missing here. In a world where all 200+ countries can sell their goods to the COMEX, this creates opportunities for poorer nations to take those contracts cheap and agree to do the work. Assume you are Mexico and have cheaper labor. $17 silver per ounce might cost you $1 in labor to get that ounce. It might cost Hecla in union labor $5 to get that ounce. When speculators drive down the price of silver to $17, it creates dirty and cheap mining jobs in Mexico, and makes it untenable for Hecla or the like to make a profit.
However, as global currencies change with the BRICS, and more and more countries going to a BRICS type of currency trade/basket, this means the USD against these currencies depreciate. This makes 3rd world labor, in USD terms, more expensive.
This is what is lost in the DXY measurement. The realization that half the world is shunning USD that are depreciating at 17% yearly. And most aren’t grasping this, only seeing the measurement against the EUR/JPY/GBP. Question for you. What natural resources do European nations have, specifically in regards to energy? What about Japan? Is it rational to see that making an enemy of Russia, Iran, Venezuela, Saudi Arabia- could this potentially be bad for the European/Japanese nations in respect to energy prices? Shit, Russia has them by the short hairs. There is only one of two ways out of this:
- Euro/JP/GB crawl back to Putin and pay in Ruble/Gold – and not USD – and enrich him? This leads to dollar down against BRICS+
- US supplying energy to Euro/JP/GB – thus driving up energy prices for US and printing massive inflation – UNLESS we explore/produce a lot more US oil? While this could stabilize prices in years, this has a high DXY initially – but allows all BRICS nations to produce goods far cheaper than Western nations. Trade balance favors BRICS, by a lot.
So, as they say, the energy is the economy. And that isn’t looking too good for EUR/JP right now, is it?
And the people who are running ours appear to be clueless as to the many threats out there. Or, they are aware, and have to dose the populace with gaslighting them on a fairy tale to prevent a Sri Lanka from happening.
So…silver shorts. Good luck with your $18.80 silver price I saw this morning. You are about to buy a beach home for me in a few years. I’m not in a rush. Take your time and tighten the noose nice and snug on you. It just emboldens me to add more of my paycheck bi-weekly to my silver miners.
It stands to reason there’s a few ways out of the mess.
- Announce energy initiative to combat Russia. Massive exploration, leases, and “war time” production of petroleum. Throw everything we have at this. To me, this can drive Russia somewhat bankrupt if we can produce oil for all of Europe/Japan. We could in a day reduce inflation significantly and drive down production costs for goods to be more competitive with BRICS.
- Reduce costs, significantly in our budget. Privatize a lot. This can have an effect of creating more private sector jobs whilst reducing our government expenditures. Spend 5-10 years of austerity while producing massive oil. Have the US government get their “beaks wet” on all petroleum sales. Royalties, if you will. If you want to drill on federal land, ok – royalty please.
- Encourage US oil producers to become “energy” producers. This allows them to develop tech for solar/hydrogen/uranium. You can create a 30 year plan for mostly eliminating fossil fuels while driving the bus on new tech/exploration. This also can allow US oil companies to take over solar/battery companies and reduce our reliance on Chinese solar panels.
- Encourage more mining for uranium, battery metals, and rare earths in the US to remove reliance on other BRICS countries for these items. At some point, these may become strategic assets and countries may ban the sale to the US. Think about Kazataprom selling the West uranium. This supply could be in danger, and I’m not sure Cigar Lake can keep the lights on for the entire West.
- Encourage more nuclear in Europe, Japan, and the US. By increasing our nuclear baseload percent, we reduce the need for coal and natural gas to produce energy. Use spent nuclear fuel to make plutonium for more nuclear fuel. This has the net effect of starving Russia of any revenue from the West for energy.
- Use the BRICS+ idea of commodities-backed currency to beat them at their own game. Use commodities/land as backing for currencies in the form of bonds. When new debt is issued, it has commodities/land pledged in it as collateral. While Canada has no gold in the treasuries, it has a lot in the ground they could pledge as part of streaming deals. Timber. Land. Oil. The bonds are backed by items that cannot be re-hypothecated. European countries may have to pledge gold in their bonds given they don’t have a ton of natural resources. Tax revenues generated there can buy more gold for debt to be issued against it.
- Reduce fed funds rate and ONLY hike into positive GDP. The fed waiting WAYYYYY too long to stop QE and what they are doing now is solving the parabola up with a parabola down. Idiocy in the making – but this only started a slide AFTER the Fed governors sold all of their holdings at the top of the market they were about to crash.
So folks – there are ways we can fight. There are a lot of productive things we CAN do, rather than just making Putin or anyone else into the devil incarnate.