Daily Archive: January 28, 2018


“Is This The Greatest Stock Market Bubble In History?”

Submitted by GoldCore

In episode two of the Goldnomics podcast we look at the developments in financial markets through the lens of precious metals.  Reader can stay up to date with all of the developments in precious metals markets by subscribing for market updates at www.goldcore.com.

Key topics:

Fundamentals do not justify the massive gains in US stocks in recent years (rise of over 300% in the S&P 500 since 2009)?
Does the U.S. have a perfect ‘Goldilocks economy’ or a vulnerable ‘Food stamp economy’?
Are we in a ultra low interest rate, liquidity driven “everything bubble”?
Is margin debt one of the factors driving speculation in stocks and a stock market bubble?
Is there ‘irrational exuberance‘ and overly bullish sentiment as seen in the recent headline ‘Stock market never goes down anymore’?
Importance of ongoing education in world of fake news bombardment
Importance of owning hard assets including physical gold and actual bank note cash outside our digital financial and banking system

GoldCore CEO Stephen Flood and GoldCore’s Research Director and precious metals commentator Mark O’Byrne in discussion with Dave Russell.

We discuss what is really driving the markets to new record heights, the less than stable economic fundamentals and central bank interventionist strategy that it is based on. We ask is there anything that central banks have left in there ammunition box to halt a slide when it starts and avoid a crash.

And most importantly we discuss what investors can do to protect themselves from the effects of the “Everything Bubble” bursting

Cutting through the financial markets jargon and looking at the risks to your investment portfolio that aren’t spoken about in the mainstream media.

Listen to the full episode or skip directly to one of the following discussion points:

1:25 Why despite low volatility, low interest rates, low inflation, tax cuts and good employment numbers we are calling this the greatest stock market bubble in history.
2:13 Why we are in the bubble cycle.
4:04 The remarkable performance of the S&P 500 and the Dow Jones, are they to be believed? The Dow up 1,000 in a week!
5:45 How to evaluate if we are in a bubble
6:00 Why if you look under the bonnet of the fundamentals you find a rusty old engine.
6:06 Leverage, political and monetary interventions and irrational exuberance are all setting alarm bells ringing.
6:45 They’ve coined a new phrase for it – “Rational Exuberance”!
7:02 What’s fundamentally underpinning market sentiment, is there anything real?
7:35 The economic number that is the canary in the coal mine.
7:58 The fallacy of the economic numbers that we are shown.
8:20 A most shocking statistic – 15% of the American population are included in this incredible statistic. This doesn’t bode well for the state of the US economy.
9:10 The work of John Williams at Shadowstats revealing the truth behind the numbers.
9:30 What we mean when we talk about the Goldilocks economy.
9:45 Looking behind the employment and unemployment numbers. The shocking truth about manufacturing jobs in the US.
11:08 How the central banks created a wall of liquidity to fuel the everything bubble.
15:05 The massive growth in global debt since the credit crisis/debt crisis.
15:30 The importance if the debt to GDP ratio – no longer earning a return on capital.
17:05 The economic Ponzi scheme created by the central banks.
19:20 How the everything bubble effects everyone. Why what happens in the US has implications globally.
20:20 Margin debt and borrowing to invest, reminiscent of 1929 as are the moves in the stock market.
22:40 The silent danger of the passive investors.
24:20 Are we abandoning the fundamentals, is anyone actually looking at these individual companies anymore?
24:40 The growth and impact of ETFs and the lack of price discovery.
27:25 Algorithmic trading technological enhancement or a danger to free markets.
27:50 That tabloid-like Bloomberg headline.
28:55 What happens to market leading stocks in a downturn, are they safe?
30:20 FANG Stocks – Facebook, Amazon, Netflix & Google in a downturn.
30:40 Are the central banks out of ammunition and powerless to stop a crash?
31:50 Opening the Pandora’s Box of printing money, is hyperinflation assured?
34:20 Another way to look at quantitative easing.
34:25 The difference between printing money and printing currency. You can’t print money – gold is money.
35:45 How stocks are a hedge against inflation, but probably not the best one.
36:35 Should we be looking at higher allocations to precious metals in this climate?
37:40 The impact of the cashless society and what this means for gold and the importance of gold ownership.
38:05 How quantitative easing is effectively taxation except that it is much more insidious and the case for gold.
39:15 The danger of the cashless society and the digitization of the economy.
40:30 What actions you should be taking in to prepare for an in the event of a crash.
41:55 The role of cash in a portfolio during times of hyperinflation, bank bail-ins and stock market crashes.

Full interview below:

Complete interview transcript:

Today we’re asking the question; Is this the greatest stock market bubble in history? And as usual I’m joined here today by the dynamic duo behind Goldcore, Stephen Flood C.E.O.

Steve: Hello everybody.

Dave: And Mark O’Byrne, Research Director and well known precious metals commentator.

Mark: Hello podcast listeners.

Dave: Now, last month we talked about the major themes for 2018 and one of the phrases that came out of it was, Mark I think it was you that said it, is the idea of the “Everything Bubble” bursting. That’s the idea that we’re seeing concurrent bubbles in stocks, bonds, property markets, crypto-currencies, which is quite an usual phenomenon for financial markets, where nearly all asset classes are trending significantly higher. But at the same time markets seem to be complacent, volatility is low, they keep trending higher with low interest rates, with low inflation, unemployment numbers are good and we’ve seen big tax cuts in the U.S. Why are we going against the flow and calling this a bubble Steve?

Steve: Yes, we are in what’s been termed a kind of a goldilocks economy where a lot of the underlying economic statistics are very supportive of the market and growth and confidence. No matter where you look, it’s looking very positive. But if you look at it from the trough to our current peak, the S&P500 has put in an incredible return of… I think it’s estimated at 270% and even in any historical analysis that is an incredible return.

I don’t know if we’re at the peak of the bubble or not, but I do know that we’re in the bubble cycle because you can see it in the dialogue, in the narrative, in the market. There are an awful lot of people who are getting into the market on the basis of fear of missing out and I think that’s a part of a bubble cycle. And you’re also seeing it in the in the media as well and you’re also getting a lot of people talking about how this time it’s different. We have a massive tax stimulus package in the U.S. and therefore the fundamentals are different now and therefore we can justify higher valuations. I think that’s all part of historical bubbles. You see this narrative play through every other bubble in the past.

So I think in 2018 we’re looking at a year where you’re going to see probably increased stock market height and it might blow off into a parabolic move before it gaps down and that’s not a healthy thing. You know, people need to invest in the long term and I think we’re going to discuss that in this Podcast.

Dave: Mark why are we going against the trend here and calling this a bubble?

Mark: I think if you look at the smart money, again the same people who warned about the first financial crisis are warning about this next coming financial crisis and there are just so many indications that we are in a bubble and the question is, what stage of the bubble are we in? Is this early, middle or late stage? Because these bubbles can go on much longer than people anticipate and sometimes people can be quite early in calling these things bubbles and the bubbles don’t actually burst, it can take a long time because momentum is a powerful thing.

I think we all view it as a bubble and the question is where we are, and how the bubbles may burst….. the “everything bubble”, may burst. But when it comes to stocks, the U.S. stocks in particular, have had massive price appreciation. So if you just look purely in terms of price alone, I mean we’re up three times. I think from 2009 the S&P is up over 170% from below 1000 in 2009 up to 2700 which it is today.

Last year alone the S&P was up more than 20% and just in the first two weeks of 2018, its up more than 5% in less than two weeks. So if you look at the returns of stock market over the long term, 50 to 100 years, they tend to return 7 to 8% per annum. We’re up 5% two weeks and we can get into the various figures that are there in terms of the technical, but……

Dave: It’s been a kind of a sustained run as well. The S&P hasn’t had a 3% pullback since November, 2016 which is phenomenal. And one that I keep an eye on, I think most people would be familiar with is obviously, the Dow Jones average in the U.S. That’s up 30% in a year. I mean is that­­ warranted? What’s underpinning at 30% in the Dow in one year?

Mark: I don’t think it is warranted, it’s due a very serious correction and potentially a crash.  I mean it’s gone up 1,000 points along just in seven or eight days from 25,000 seventy to 26,000.  And President Trump, the president of America is calling for Dow 30,000 and he’s trying to take credit for it. We’re getting all of these the warning signals, they are there.

But the way to evaluate a bubble is actually in four ways; 1) rising prices without improving fundamentals. I think we have that. The fundamentals are fairly good, but there’s a lot of­… Superficially their very good but, if you look underneath the bonnet so to speak, it’s quite rusty and they’re on shaky ground. We’ll get into that.

The next thing is 2) leverage; when you’ve got people using a huge amount of debt to the buy assets, that’s a factor that you need keep an eye on.

3) Political and monetary interventions; so we’ve seen that in spades obviously with the central banks having decreased interest rates to 0% and engaging in quantitative easing. That’s what’s contributed in a huge way.

And the fourth thing is 4)  sentiment, and we have irrational exuberance in spades today. That term irrational exuberance, I think it captures the moment of where we are at. That’s what Greenspan said in 1996 when the Dow Jones was at 6,000 then, and he was suggesting it was a bubble then and it subsequently went well above 10,000. And it didn’t burst till four years later. So, who knows this bubble really could go another two to three to four years.

Steve: There was some research note there recently from one of the major investment banks calling it; “rational exuberance”, as opposed to; “irrational”, on the basis that they think it is historically very high, but it had a ways to run and they saw may be another 10% move this year.

Dave: And what do they see as fundamentally underpinning that?

Steve: God knows, I mean I suppose they’re on the sell side so they’re always going to talk it up and you know you have that bias inherently there. I think they’re looking at the debt markets and they’re looking at the overall consumer confidence and the manufacturing indexes are being very supportive, the housing market is very supportive as well. There’s a number of positive economic indicators that are leading to that goldilocks economy. So we’re not seeing the stresses yet, I think we’re going to see stresses coming out, we’re going to see some money coming off the table.

One of the major things I’ve looked at before is the unemployment rate in the U.S. It’s at 4.1%  and every time, I think I said this last time, every time it hits that point it tends to be at a point of contraction and the market then sells off as assets come off the table. You’re at full employment and then you start having inefficiencies coming into the market and people begin to divest.

Mark: Just one thing on that goldilocks economy, that 4% unemployment rate is quite bogus actually because if you look at the methodology of how they calculate the unemployment figures today, they’ve change radically compared to how they calculated those unemployment figures 20 or 30 years ago. There’s been a different incremental changes over the years in terms of the statisticians in the Bureau of Labour Statistics. In fact a number that I look at is the food stamps number….

Dave:  What’s that, the number of people signing on for food stamps?

Mark: Exactly, to feed themselves, in America it’s 15% of population.

Dave: 15%!?

Mark: 15% of the population, so what they’re calculating is people…. You actually fall off the statisticians numbers in terms of unemployment. They have all these statistical gimmickry where by you actually fall out of the employment numbers after 12 months, because they assume that…. They may say that you’ve gone and created a business or you’ve given up looking for work or you’re not actively trying to find work. They actually take you out of that number. They’re actually not….

Dave: So they’re not accounting for long term unemployed.

Mark: Exactly that 4.1% percent does not account for long term unemployed.

Dave:  So, the 4.1% is only really a number that suggests or underpins short term unemployment.

Mark:  Exactly and there’s a great guy,  we’ve covered him on many occasions; John Williams in Shadowstats, who looks a lot of these statistics and he shows how they’re manipulated in effect. So, it’s creating the impression of a goldilocks economy, but as I said when you look underneath, Goldilocks she’s not as pretty as you would think, shall we say.

Dave: And obviously, the Goldilocks reference there, when it comes to the economy is – not too hot or not too cold.

Mark:  Yes, just perfect.

Dave: Just perfect. And talking about the unemployment numbers, I was reading something and you covered him; Stockman, in the Market Update yesterday and it was very interesting article. I was reading something that he wrote something in the Wall Street Journal and he was looking at various numbers, various figures and he talked about manufacturing jobs and that in the period of 2007 to 2010, there were 2.3million manufacturing jobs lost in the U.S. and in the period of 2014 to 2017, only about 10% of those jobs lost have come back on stream.

Mark: They’re losing the better paid jobs as well. So, you’re getting a lot of casual labour and part time work, McDonald’s jobs, low paid jobs, part time jobs. The quality of jobs are going down as well and that means actually the wages that people are getting for those jobs are not going up. That would be to sign of a true Goldilocks economy, people would feel the wealth effect, and the man in the street would feel wealthy. But the man in the street is not happy, is angry and you can see that with Trump being elected. And in the move… we covered this in the last podcast, in terms of move to the left or right the more extremes that we’re seeing you know people don’t feel wealthy at all and the rich are benefiting from the quantitative easing and the 0% interest because they own assets, but the man in the street doesn’t tend to own assets. They depend on their wage and they’re not seeing any increase in their wages…..and then more job insecurity in huge way.

Dave: Steve, last time you talked about this wall of liquidity looking for a home and you talked about that in relation to basically the “everything bubble”. For those that may not have listened to episode one, can you just give us a refresher on that and tell us how it’s fuelling this stock market rise.

Steve: Leading up to last financial collapse there was an awful lot of excess in the broader capital markets where a lot of debt was taken on in an unsustainable format, and obviously when the assets prices started to correct, and the debt was found to be completely unsupportable, the official sector stepped in and on the basis of trying to cure the market, they tried to cut out the cancerous debt overhang and what they did was, they took all that debt in and hid it away from the market and put it on off balance sheet vehicles, controlled by the central banks and they paid back out on the this debt 100cent on the dollar.

So, they reinvigorated the market, they gave it fresh capital and fresh cash and they said let’s learn our lessons, let’s have safer banks, let’s put in new regulations. But here’s your money back and here, let’s hit the reset button and go again. And so an awful lot of this cash….

Dave: Just to clarify that’s going to be an institution would have bought a bond, originally say for $100 and that bond has fallen in value down to 90, 80, 70, 60 or even lower and then the Central Bank is stepping back in and saying; “I’ll buy that back off you at 100”.

Steve: Yes. So they basically allowed the banks to earn back the original face value of that debt, in the interests of recapitalizing the banks and injecting capital, much needed capital back into the into our into economies.

Dave: Because if they didn’t do this then, subsequently we’re going to be looking at bank collapses. So they basically they had to do this.

Steve: We were looking at a potential depression, which could have lasted for an awful long time and led to massive social problems right across the western world. And so this was unpalatable so, they decided to cure the market and cut out this this cancerous debt. And they did this through quantitative easing; so they would expand their balance sheets, they would issue money out of nothing on one side of the balance sheet and then they would sell it and take on liabilities on the other side – the debt, and they would give that cash… that cash would then make its way to those banks and those private equity firms and they would go out and invest that money.

And the theory being is that once they invest that money, then those companies do well and the benefits of that will then wash down to lower part of the economy, to employment, there’s more employment, more spending, more wage growth and an economy gets back into a virtuous circle. But, really what’s happened is that the higher echelons of society, the asset ownership class, they saw a massive appreciation of their assets and they saw their liabilities dwindling and they paid back debt and they own assets and they rent those assets out and they haven’t necessarily been spending it in new capital projects and so we haven’t had a huge capital boom that you would expect to see an economic recovery. And you haven’t seen the kind of movement of money throughout the economy changing hands as you would expect to see in a recovering economy.

In fact after most recessions you tend to see the velocity of money increasing as people become more confident and have more money in their pocket, but you haven’t seen that at all. In fact you’ve seen the velocity of money dropping to its lowest point in recent history and in fact it’s at 1.47 now if you look at the stats and it’s incredible. So, by injecting all this money into the economy it hasn’t trickled down, so the initial strategy didn’t work and what you’re seeing is one part of the population benefiting from higher asset prices and the other side the economy not getting a wage increase and not getting extra money to spend and more uncertainty as to their prospects.

Mark: Yeah, Stephen’s hit the nail on the head. And that’s the fundamentals. He’s really going in to the fundamentals of the economy, where we are today and the bottom line when you look at the quantitative easing and what they did there, we had a credit crisis/debt crisis. I think it’s better to look at it almost as a debt crisis because, it’s the amount to the debt in the world in 2007/2008 at every strata of society contributed to the initial liquidity crisis and the solvency crisis. But today the debt is actually gone fromit was a 150 trillion pre-crisis, today it is 233 trillion. So it’s gone up over 80 trillion in less than 10 years in this so-called recovery.

If you look at the chart it’s very interesting. And that’s the key thing, the debt to G.D.P ratio, that’s a key measurement of economic soundness and the fundamentals of the economy whether it is really Goldilocks economy, or not. So, Goldilocks is swimming in debt and she’s going to be foreclosed on and be put out of the house very soon and she’s going to be very cold indeed. A picture paints a thousand words, but it looks like when you look at the charts you could always see that the G.D.P. growth would outstrip the increase in the debt. It would be slightly higher and increase

Dave: This suggests that you’re getting a return

Mark: Yeah exactly, and recently it’s gone the other way where by the G.D.P. is sort of over the top of the hill and it’s sort of increasing very slowly, if not topping out, meanwhile the debt is going parabolic. And just in the last year alone, it’s gone up 16 trillion from Q one, the start of Q one 2017 to the end of Q three 2017. So another sixteen trillion in the debt, so it’s clearly unsustainable and that’s why we believe in this “everything bubble” and US stock markets in particular is a bubble. You have to look at different stock markets, some stock markets are undervalued, maybe there’s a reason they’re undervalued, whether in Syria or Venezuela or Russia, markets can be undervalued and they can stay undervalued. But the U.S market looks very overvalued indeed and that’s the key in terms of fundamental driving it.

Steve: Two things on that; I remember a while ago we were talking Mark and you said you know for every dollar of debt that’s issued the amount of  economic return you’re getting is now gone negative. I think it’s like 60 or 70 cents. This is Ponzi scheme territory.

Mark: Exactly we’re not getting a return on that debt.

Steve: Yeah, it’s actually costing the real economy. I don’t have a problem with debt increasing as long as it has a purpose and a function, like when you’re building factories, you’re creating, you’re creating excellent products and services and efficiencies.

Mark: Building capital

Steve: Yeah, building stuff, helping people and bringing population into productive work and activity. But what we’re seeing now is kind of the financialization of our economies, where you have very creative financial products out there which are which are kind of creating a kind of volatility in our daily lives that we’re seeing in our house prices, we’re seeing it in our health care, we’re seeing in our educational costs and it’s transmitting through the economy risks and shocks and it shouldn’t. We should have buffers in our economy that stop this happening.

But one of the main points in terms of all this debt, basically you can look at the debt amount that’s being produced by the central banks over the last years and I think that 20 trillion dollars has been just magic-ed out of nowhere. And you chart that and you look at the actual stock markets and it’s one for one. Literally every dollar of debt that the central banks of have produced has gone straight in to stock markets and that stock market growth really kind of benefits one sector of society, the top 5 to 10% of people and the rest don’t own stocks really. They are on salary, they’re salary slaves. They go from pay check to pay check, they don’t have assets, they rent everything and if they’re lucky at they have some sort of instability in their job.

Ever since 2000, the actual amount of individual prosperity, that you can measure an economy on, for workers has actually plateaued, it’s gone sideways. Whereas corporate profitability has kept rising. And all of this comes down to the intervention of the official sector in the economy trying to cajole or force the economy in to what they want it to be, to be successful, for political reasons.

Dave: I’ll just interrupt you there for a second because we’re being very much focused on U.S. stock markets in the conversation so far, but just to say that this isn’t just a U.S. issue. This is happening—

Mark: The “everything bubble”, affects everybody, but I think the U.S. stock market looks more of overvalued given the scale of the move up.

Dave: But in terms of the quantitative easing that we’ve seen that’s not isolated just in the U.S.  That’s a global issue.

Mark: Of course it’s not, no. The global debt to G.D.P. ratio is 320% and that’s a ratio that would bankrupt most nations. So the world is in effect bankrupt and  talking about the Goldilocks and she’s massively in debt and not only she massively in debt, she’s actually taking out loans to buy stocks and this is contributable, the margin debt is at all-time record highs and I think you’ve looked at some of those figures, Steve haven’t you?

Steve: Yes, if you look margin debt, margin debt is measured and there are some great stats on New York Stock Exchange. It’s essentially the amount of debt that investors are taking out so they can participate in the marketplace and at the beginning of last year it was about 513 billion which is historical high. By the end of the year it is estimated to be around 580 billion, so massive growth just inside 12 months and it’s continuing to go higher.

But even if you look at margin debt… inflation, that’s not inflation adjusted, that’s just beginning of inflation adjusted then you might be lower. But if you look at it as a proportion of the actual capitalization of the market it’s an all-time high and I think the metrics coming around 3% of the market is margin debt and historically it was around 1%/1 ½%. In the last financial crisis, it was just under 1½ % and now it’s at 3%.

So, it double what was an incredible high the last time we had a collapsed. And that just shows a huge fervour, it’s very much part of the bubble cycle where people are fearing missing out and there’s a huge event, the media are talking it up like they’re talking it up in the quarter four 2017, C. N.B.C. and all these guys. There’s an awful lot of very positive commentary coming out of the markets and Trump’s economic stimulus and tax plans and it’s incredible to see and we’ve been here before, but you know we just don’t learn the lessons.

I think for our listeners, where the most important things is to kind of acknowledged that this might be happening and then to decide what exactly what can they do about it and in order to prepare for it.

Mark: Actually, just on the margin; it’s higher than 1929, it’s higher than 1987.

Dave: And that would have been one of the things from the 1929 point of view. That was pin pointed as being the needle, or the pin that burst the bubble.

Mark: Absolutely and I read some I don’t have the exact figures at hand, but I read recently that the move up in the Dow jones from 1924 to 1929 is comparable to the move up that we’ve seen in recent years in the Dow Jones again . There is a mini parabolic move going on and any time you see massive out size performs like that you tend to see a very sharp correction at the very least.

But when you have this level of debt, not just in terms of the speculation using margin on stocks, but that’s a big factor and it’s important to look at that, but just at every strata of society that creates the real risk of a crash. And that’s why I think….. The thing to distinguish the U.S. stock market is that it’s the biggest stock market in the world and the M.S…… so all of the passive guys in the world who are allocated in wealth management firms around the world and financial advisers; they would use the M.S.C.I. World Index as their their way to allocate to stocks.

Dave: A passive investor is somebody who buys all the stocks in an index.

Mark: Exactly, a broadly balanced portfolio, he doesn’t buy and sell and time stocks and doesn’t pick individual stocks or individual sectors or geographies. So they buy the market in effect and that’s the way the M.S.C.I. World operates. More than 50% of that index is actually U.S. stocks so if the U.S. stock market has a very serious correction or crash, it’s going to impact pension funds around the world and they are already under pressure very significantly because of record low yields on their bonds and then the demographic time bomb that we’ve all been talking about for years.

So there’s a confluence of all these factors coming together and we’re only covering some of them, but just to finish out that point. So it’s this “everything bubble”, as well, that’s in the back ground and then you’ve got the problems in the bond market and I do think that this is what creates one the biggest risk that we’ve seen in history, one of the greatest financial bubbles we’ve seen in history. The question is will it get bubblier in effect, before it crashes and the air comes out and then how does it crash, do we get one more wave of deflation and a crash and then the central banks print money and then we get massive inflation, hyper inflation which quite possible or do we go straight into a quite inflationary mode which would see stock markets go even higher.

Dave: One question I’ll ask you guys at this point; from a fundamental point of view are people looking at the numbers coming out of these companies, how are these companies performing?

Steve: This is the nub of the issue and this I think is where we differ from previous market cycles. We’ve gotten too smart for good and generally speaking. Since the development of exchange traded funds or through an E.T.Fs which mimics certain sectors of the stock market, we’ve made it really easy for people to get exposure to certain sectors and there’s been a lot of study done recently…..

I actually when I worked in New York years ago, there were developing E.T.Fs on our desk at the time and it was… I think was called Trebble Q at that time the Spider E.T.F for the S&P500… and it went gangbusters out the door people couldn’t get enough of it. It was really easy and it was cheaper than the alternative which was active managers and these were paid stock market pickers who would go and try and beat the S& P500 index and people said; “you know what I’m happy just with the S& P500 index, so we’re going to buy this exchange traded fund that mimics it.”

And ever since then the percentage of trading of the US stock market that comes from the passive indexers, which we just spoken about and the E.T.Fs has grown and grown and grown and active managers, the guys that are stock picking has fallen and fallen and in fact, I think about 90% of trading in 1990’s was active, now it’s fallen to about 70% and then E.T.Fs and passives have gone from about 10 or 15% up to around 30%.

They reckon about 10% of the market is discretionary traders, fundamental discretionary traders. These are people who are buying and selling, duking it out on the bid offer in the market. And these are guys who are looking at the books; they’re looking at the companies

Dave: They’re doing a bit of price discovery.

Steve: They are trying to figure out and they are trying to price in that news, they’re doing arbitrage strategies, long-shorts whatever it is and they are living on the basis of their capital going up or going down and if it goes down it hurts them. That is a beautiful thing because the wisdom of the crowd comes to bear, there’s a price discovery mechanism there and then the passive guys would hang on those pricings and would trade along with them.

So what we’ve had now is that, the official sector is coming in as a bad actor, I think I mentioned it before in the last podcast and they’re buying no matter what. The E.T.Fs guys are coming in and they’re buying no matter what because, it’s on the list of stocks in the S&P500 or M.S.C.I. and the passive guys are buying as well and so the fundamental guys are being driven out of the market and they’re no longer participating. So the market is just going up and up and they’ve done studies on this and they said; “if you have a company and you’re C.E.O., if you just get listed in the S&P50, the correlation, your growth will go with the index and start to be less about your company and more about your membership of the index.” So, you could be­ doing anything in your company or whatever it is, but it’s less important what you do day to day. It’s more important that you’re in that index and it surprising.

Mark: And added to that the Algos, and the machines are actually following the momentum of all these guys and that’s feeding on itself as well. So that’s another factor that you could cover for a full podcast. It’s an amazing development that has very significant ramifications.

Steve: They are all kind of blind following each other with the lights off.

Mark: One thing on the sentiments just this week the headline came out. I wrote it down here. It was on Bloomberg and I’ve never seen a headline like this, but to me it was like classic sentiment warning indicator that we’re near the top. May not be, but I mean this is a classic. When you see headlines like this, it’s time to sort of reduce allocations. And the headline was; “stock market never goes down anymore”. This was a headline on Bloomberg. I mean the Bloomberg headlines have been getting a little bit more tabloid-like in recent years and I think that they’re trying to get bums on seats but there actually has been a host of others.

I actually typed out Dow 30,000 in to Google News to see what I would come up with and they came up with; “Dow 30,000 by year end”, on Seeking Alpha. “Scent of Dow 30,000”, on The Street. “Dow 30,000, how to get there in 2018”, and indeed we also have President trump talking about Dow 30,000, so who knows, big round numbers they tend to migrate to these numbers and given the degree of irrational exuberance and the momentum that’s there. It could go higher before going to lower.

Steve: I don’t know if we have the time to talk about when this might shift and what might be the straw that breaks the camel’s back.

Dave: One thing that I want us just to address because, I know it can be on the minds of a lot of people who are listening to this. Because when they’re hearing this particularly whether it’s passive indexes, whether it’s algorithm trading, whether it’s potential of a bubble, they’re probably sitting there and thinking; “but I own Apple stocks, I own Google stocks, I own Facebook stocks, I own all the big ones surely they’re good stocks to continue to hold. They’re not going to be affected by what happens?”

Mark: Well they are and they aren’t. This was the argument in 2007 and 2008 with some of the stockbrokers and people said; “well these are blue chip shares that will do well no matter what”. But all these stocks are massively correlated and if you get a massive correction or a new bear market in stocks, they will go down as well and similarly if the U.S. stock market sees a serious correction or a crash… when the U.S. gets a cold or when the U.S. sneezes, we all get a cold. And the other stock markets will be correlated and they will take lead from the S&P 500.

Dave: So, the good the good follows the bad down.

Mark: It does and that’s not a reason to say that should sell all your blue chip shares, but potentially if you are over-weighted or over-allocated to some of these blue chip shares, and  the tech sector does look quite frothy and the FANG stocks have been the sexy thing to own recent years. So if you do own them over allocated, I won’t say sell them.

Dave: The FANG stock for those who don’t know are – Facebook, Apple, Netflix and Google.

Mark: So I think you should possibly take some profits and rebalance your portfolio.  We’ll come to that now in terms of what the real important question here is not whether these markets are bubbles or not. We think they possibly are but we don’t have a crystal ball and they could become much bubblier. The question for people is what we should be doing in 2018 and the coming years to protect ourselves from these various risks that we’ve outlined.

Dave:  When we’ve seen these corrections or crashes or even the crisis back in 07/08 Central Banks had powers in the form of being able to lower interest rates and move into the quantitative easing that Steve talked about. They also have the ability to cut taxes. Now we’ve got interest rates near record low. Some of them have increased slightly, but we’re still near record lows. They’ve got no room left, no fire-power left and that we’ve seen large tax cuts in the U.S. and there was a degree of reluctance to push those through.

Is there much more room for further tax cuts? So, if we’re fiscally hand-cuffed from a monetary policy point of view we’re also hand-cuffed or limited. That really kind of sounds dangerous if we see some sort of correction

Steve: I think they are just going to print money. The quantitative easing

Dave: But can they do that indefinitely and if they do it indefinitely what does that do?

Mark: QE forever!

Dave: Is that massive hyperinflation?

Steve: It’s a Pandora’s Box. If you start at process; it’s always going to be on the table as a politically expedient option. They’re going to go for it whenever there’s a correction and there are job losses, there’s going to people out for blood on the streets, they’re going to force the Central Banks, even if they’re supposed to be independent they’re going to force them to buy and monetize debt and print money. And essentially it will create more inequality, it’ll create more volatility, it will drive out the fundamentals from the market and it just becomes an official sector exercise.

It’s almost socialism really at the end of the day. They are abandoning capitalist fundamentals and market based economies in favour of stability because, essentially they are micro-managing the markets. I will say one thing, another factor driving up the markets is also the search for yield the search for return and traditionally you would have had large sectors of the economy who would have been comfortable with the yield off bonds and fixed income, which were issued on a stable basis. And now you have bond yields negative in many regards, they’re beginning to go up a little bit now and that is the price of bonds so if the price of bonds goes up the yields goes down and vice versa.

So, bonds have been rising in prices as people just throw money into them and they’re accepting less and less in return in fact negative. Some people say; “I don’t want to lose money on my bond investments or my money I’ve saved after tax”, so they start putting it into the stock market and that’s driving up demand for stocks as well.

Mark: cryptocurrency as well, people are speculating to get that return.

Steve: Yes there is a theory that as this wall of money that’s being printed begins to come down into the street inflation is going to rise and interest rates are going to rise as well. And as interest rate rise, there will be less of a reason to own stocks and suddenly stocks will start looking very overvalued and expensive and if they do start to look expensive then you have the smart money will start driving out of those stocks very fast. That could create a run on the market and suddenly you have a freefall.

So now we’ve just turned a corner, suddenly bond interest rates are starting to rise. The 10 year had started to rise, it’s at 2½% percent or more now, it’s going up again and you’re beginning to have original patterns reassert themselves and so if that happens this market looks so incredibly expensive.

Dave: Another way to look at this quantitative easing, the idea of just printing money. If they start to see correction of printing currency

Mark: They can’t print money, gold is money. They’re printing fiat currencies and I said printing money myself, its funny the language we use and that’s important distinction.

Dave: When you talk about printing currency, there’s the way that I like to look at it because if they do print currency and a lot of that money is going to flow back into the stock market potentially, perpetuating this bubble and you’ll have people sitting on the side lines saying; “look at the Dow blowing through 30,000, 35,000 to 40,000”, and really the way to look at it is rather than seeing stocks appreciating effectively what’s happening is you’re able to buy less stocks for your dollar or your euro. So effectively what you’re doing is you’re devaluing the currency and I suppose to bring it back to what we do here. You’ve got a finite amount or an infinite amount of potential stocks and shares, but you’ve a finite amount of gold and silver. So in a situation like that, where there is continuous or perpetual printing of money, you’ll find that your dollar buys the less and less gold or less silver. The other way of looking about is the prices over rises consistently and considerably and the price of gold rises consistently and considerably

Mark: Yeah absolutely, you can have potentially infinite currencies and that’s potentially we’re going in terms of Q.E to infinity and beyond and Q.E forever. There are all sorts of wags who come up with different titles for it and that’s the real risk. And therefore if the Dow 30,000, Dow 40,000, Dow 50,000….. stocks are a hedge against inflation so therefore,  that is likely to happen, people put money into companies that survive and that will try and generate profit. Zimbabwe was the best performing stock market when they had their hyperinflation in whatever year it was, 2010 I think it was.

We have the bank notes, we’re in here in the Vault Room. The banks notes are up there which have the Zimbabwe hyperinflation notes up as much as one trillion Zimbabwe dollars. Their stock market was the best performing stock market in the world that year last year. I think Venezuela was the best performing stock market in the world and the Venezuelans were in hyperinflation.

So, stocks are a hedge against inflation, gold is an even better as against inflation particularly when your fiat currency is being devalued in a massive way. And you get into a hyperinflation scenario. It speaks to the importance of having an allocation to actual physical gold in your portfolio and given these risks I think our rule of thumb was always put 10% of  your wealth in gold and you hope to God it doesn’t work. I think today given these risks, I think it merits higher allocations.  If you can put 40% of your portfolio into stocks and forty percent into bonds why wouldn’t you potentially put 20, 30, and 40% into precious metals? You might put 20% to25% on the gold and 5% to 10% on the silver and then to 2½% in platinum or palladium or something like that.

I believe in higher allocations to precious metals in this environment– that might be on the high side and it won’t be for everybody.  I mean you have to look at people and their age profile, their risk appetite and all these things are very important and take financial advice. Take financial advice in particular, from a financial adviser who understands gold and advises people to own precious metal, because there’s lot of financial adviser who simply don’t understand it and don’t want to understand it.

Steve: As you we’re talking there Mark I was just remembering, I’ve talked an awful lot of clients recently and there they’ve been talking about the cashless society and how that’s going to underpin huge demand for gold because, you won’t to have to a form of money that you can put under a mattress any more. We will be all in with the system and the system is fairly corrupt.

Mark: All your eggs in that one basket

Steve: Yes and if you think about thatwe’ve talked about this word Q.E. But essentially what quantitative easing is or the printing of money by central banks, it’s actually taxation and it’s actually them taxing the money that you have. It’s like a percentage on your pay check. But it’s much more insidious. It is hidden away and you don’t see it and the interesting thing is the people who are doing this and making these decisions are not elected; they’re not elected at all. We don’t have a conversation a debate in the media about what the interest rates going to be or how much you know bond buying is going to happen this month. It’s just kind of delivered to us on a plate and we’re told to accept it and we don’t see it, we don’t feel it right away.

But then when we see the stock market rising and we see the asset rising, house prices going up and we see the cost of mortgages changing and we see volatility coming into our economy based on something happening in Europe or America, that’s the cost of this. I think with  cash leaving the system, or physical cash leaving the system the actual case for gold is a physical form of money that you can hold out of the system and protect yourself has never been stronger and it’s going to increase, the case going to get stronger every day.

Mark: Absolutely, the cashless society… they’re trying to corral everybody into this sort of digital economy and every day we hear news scandal about cyber this, cyber that and hacking here. The most recent one or even the most fundamental thing, that Intel chips that is paramount for most computers and on our devices are vulnerable in some form of malware; Spectre and Meltdown or Meltdown Spectre, whatever it was. And Equifax in the US one of  the biggest companies that actually held the data, very sensitive data of  U.S people in terms of their Social Security, their payment, details of dates of birth, their addresses, they were hacked and every month there’s’ a new instance of this.

It’s showing the vulnerability of this digital economy and digital finance and digital currencies and therefore forcing everybody to have all their money and all the wealth in the system, it’s not prudent actually. You need an ecosystem and by having that diversified ecosystem it actually protects companies and individuals. By corralling us all into this one little system it increases the systemic risk because you don’t have that diversity and that diversification.

Steve: I don’t know if we have time to talk about what people can do with a bubble as it’s forming and how they should invest and the tool kit available to investors. So, I think some of the standard advice we have and we give to clients every day is that you know you do need to have an allocation to gold and precious metals.

Untypically as I said it could be anywhere from 5% to 20% or more if it’s deemed prudent for you and your circumstance. I think you need to be a little bit sceptical about what’s happening out there, you need to be a bit sceptical about what the media is saying, take it with a pinch of salt and ask yourself questions; is it underpinned, is it fundamentally based, watch what you’re hearing and reading about it.

And also the in terms of your own personal self, you should invest in yourself, invest in your education, invest in your job or your company whatever you doing. You should have that specialist expertise about you that makes you very valuable as a member of our economy and that in its own self will help you ride out any kind of extreme volatility in the marketplace. So investing in yourself, in your education you should be diversified in your portfolio as Mark said, some bonds, some equities, some real estate as well as your home. They’re all very important.

Keep an eye on costs, very important in terms of whatever you invest in you know you want to be somebody who Nickel and Dimes. I think it’s something that comes easy to Americans. In Europe it’s something we don’t do as much. We’re a little bit more accepting and when we should really be focusing on costs and getting value for money every time. That’s why a lot of one of our customers come to Goldcore because we are extremely good value for money.

And you also should stay out of cash. Cash is something that people look to in times of crises. It’s not always the best place to be because again you have inflation, you have the money printers and the tyrannical Central Bankers who are depreciating our cash and savings and so cash is not necessary the place to be, hard assets are probably where you want to be and then the allocation to them should adjust up and down depending where you believe we are in the economic cycle. But also read widely, read well and listen to podcasts like ours. And again go back to the very first point educate yourself, constantly the educate yourself.

Mark: Yeah, I couldn’t agree more and just on the education point it’s key because the world is changing so fast you really have to keep up to date with that you know and there’s is so much noise out there and you’re just bombarded with all sorts of information and much of it is disinformation it’s disempowering and it’s all about fear and unfortunately we have to look at these big scary numbers and the ramifications thereof, but we’re not doing it to scare people. We’re trying to empower people and then tell people you know this is how you protect yourself and this is how you will actually protect the grow your wealth and come out the other side.

Our mission statement when we set up the company in 2003 was to protect and grow our clients’ wealth and we’ve done that fairly well over the years and that’s why we talked like this.

One thing on cash, I think, it’s traditionally financial advisers and wealth management they would suggest 5% to 10% allocation to cash. I think in the current climate given the bubble that’s in bonds and stocks you could have a slightly higher allocation to cash, but the key thing is be aware of inflation If it looks like it will take off it own stage and then with the risk of bail-ins and the deposit confiscation which is something we’ve covered quite frequently over the years and a lot of our clients are concerned about that, you need to be very careful about which bank. So, looking at the counterparty risk of individual banks and potentially, some of our clients do this, and I see the merits of increasing this, take some actual physical cash, a small amount, not a huge amount, some physical cash out of your bank, put it into a safe deposit box or vault or someplace safe. A small amount.

Steve: Three months of your expenditure that you would have as a family, you’d have in cash

Mark: I never thought I’d see myself say that on the podcast, I’ve had this view for 2 or 3 years but the more I think about it just gives me certainty it makes absolute sense.

Steve: I think it’s been a fascinating conversation in terms of bubbles and where we are in the stock market and what you can do as an investor going forward. One thing is very important for ourselves is that we get as much feedback from clients who might be listening to the podcast. We are always looking for ideas for the next month as well.  So do feel free to reach out to myself or Mark with your thoughts and suggestions for any future podcasts.

Mark: We had a little bit of feedback on the last YouTube video which was great. The podcast is on YouTube obviously. And whatever way, either you can send us emails or post comment on YouTube or even on the podcast channels. All feedback is greatly welcomed and it will very much guide as tol what topics we cover.

Dave: Great. Gents, that seems like a perfect place to wrap this up for this month as usual I’ve learnt an awful lot from you two yet again. And so as we’ve said before subscribe to the podcast, the Goldnomics podcast on iTunes, on YouTube on SoundCloud and give us your feedback and your comments, anything that you’d like us to talk about in future episodes. We will be delighted to hear anything that you have to say.

So from me Dave Russell, Steve, Mark, thank you all very much for listening.

Mark: Thanks guys.

Steve: Thank you very much.


John Kerry In Secret Communications With Palestine For “Alternative Initiative” Circumventing Trump

During the middle of last week a bombshell report hit Israeli media but was largely ignored in major international press. According to the Jerusalem Post former Secretary of State John Kerry has been actively undermining President Trump through his own back channel communications with representatives of Palestinian Authority President Mahmoud Abbas.

This reportedly included Kerry telling Abbas to “hold and be strong” and to not “yield to President Trump’s demands” until Democrats are able to kick Trump out of office, and even included the suggestion that Kerry himself would seriously consider running for president in 2020.

Then US Secretary of State John Kerry, right, with Palestinian President Mahmoud Abbas in a 2014 photo. Via ABC News

The report comes amidst what has developed into a complete disconnect in relations between the White House and the Palestinian Authority after Trump’s early December move to formally recognize Jerusalem as the capital of Israel, which includes plans to relocate the US embassy from Tel Aviv to Jerusalem by the end of 2019. This was also followed by repeat threats from Trump to cut US aid to the Palestinian territories, reiterated as recently as Thursday before reporters at the World Economic Forum in Davos, where Trump indicated he might cut $700 million in annual U.S. aid “unless they sit down and negotiate peace.”

But it appears, according to the Jerusalem Post relying on revelations sourced to the Israeli outlet Maariv, that Kerry is one among the “previous administration” which has “maintained contact with PA officials” and is seeking to secretly jump start a separate peace plan which circumvents the current US administration, and which presumably would come to maturity once Trump is out of office.

The claims center around a recent meeting between John Kerry and a close associate of Abbas named Hussein Agha, who is considered the most senior and veteran negotiator with Israel concerning the peace process. 

The Jerusalem Post reported of the London meeting: 

Maariv reported that former US secretary of state John Kerry met in London with a close associate of PA President Mahmoud Abbas, Hussein Agha, for a long and open conversation about a variety of topics. Agha apparently reported details of the conversation to senior PA officials in Ramallah. A senior PA official confirmed to Maariv that the meeting took place.

And the alleged plans discussed at the meeting, if confirmed, are explosive: 

Kerry asked Agha to convey a message to Abbas and ask him to “hold on and be strong.” Tell him, he told Agha, “that he should stay strong in his spirit and play for time, that he will not break and will not yield to President Trump’s demands.” According to Kerry, Trump will not remain in office for a long time. It was reported that within a year there was a good chance that Trump would not be in the White House.

Kerry offered his help to the Palestinians in an effort to advance the peace process and recommended that Abbas present his own peace plan. “Maybe it is time for the Palestinians to define their peace principles and present a positive plan,” Kerry suggested. He promised to use all his contacts and all his abilities to get support for such a plan. He asked Abbas, through Agha, not to attack the US or the Trump administration, but to concentrate on personal attacks on Trump himself, whom Kerry says is solely and directly responsible for the situation.

If true it means Kerry may have effectively co-opted and quietly taken control of a key diplomatic channel at the heart of American Middle East diplomacy, creating “an alternative peace initiative” which would garner “international support” outside of White House channels.

While Kerry himself has yet to comment publicly on the claims, an unidentified associate said be close to the former secretary of state told Boston Magazine a day after the Israeli media report that “The story is simply wrong” and further, “Those aren’t Secretary Kerry’s views or positions on the Middle East peace process, nor would anyone in their right mind send political trial balloons through foreign emissaries.” Boston Magazine further noted, “Agha has also denied that such a discussion took place, according to a source close to him,” while not quoting the Abbas aide directly. 

One of the other shocking elements of the Israeli media report relates to the ‘deep state’ war against Trump. According to the Jerusalem Post:

According to the report, referring to the president, Kerry used derogatory terms and even worse. Kerry offered to help create an alternative peace initiative and promised to help garner international support, among others, of Europeans, Arab states and the international community.

Kerry hinted that many in the American establishment, as well as in American intelligence, are dissatisfied with Trump’s performance and the way he leads America. He surprised his interlocutor by saying he was seriously considering running for president in 2020. When asked about his advanced age, he said he was not much older than Trump and would not have an age problem.

This set off some speculation last week over whether 74-year old Kerry would be too old for the job by 2020 and after. The report added Kerry as saying that even establishment Republicans “didn’t know what to do with Trump and are very dissatisfied with him and that patience and breathing time are needed to get through this difficult period.”

Though confirmation from either the Abbas or Kerry side will likely never come, the reported reference to Kerry urging Abbas to “hold and be strong” until Trump is out of office echoes Obama’s infamous hot mic incident with then-Russian President Dmitri Medvedev in March 2012, where Obama in a whispered message intended for incoming Russian President Vladimir Putin said of a controversial US missile defense plan and other difficult issues, “After my election I have more flexibility.”


Paul Craig Roberts Warns “In the Western World Lies Have Displaced Truth”

Authored by Paul Craig Roberts,

Last year I was awarded Marquiss “Who’s Who In America’s Lifetime Achievement Award.”

This did not prevent a hidden organization, PropOrNot, from attempting to brand me and my website along with 200 others “Putin stooges or agents” for our refusal to lie for the corrupt, anti-American, anti-constitutional, anti-democratic, warmonger police state interests that rule the Western World.

The only honest, factual media that exists in the Western World today are the names on the PropOrNot list of “Putin agents.”


The purpose of PropOrNot is to convince Americans that freedom of speech must be halted by destroying fact-based Internet media, such as this website and 200 others that provide factual information at odds with Big Brother’s universal brainwashing as delivered by CNN, NPR, the New York Times, the Washington Post, and the rest of the utterly corrupt presstitute media, a collection of scum devoid of all integrity and all respect for truth.


A conspiracy of US government agencies, tax-exempt think tanks funded by the ruling interests, and media acting on behalf of a war and police state agenda work to shape perceived reality as it is described in George Orwell’s book, 1984, and in the film, The Matrix.


Controlled perception-based reality is only a Facebook “like” away from killing one person or one million or elevating a liar or the warmonger responsible for the killing to hero status or to the control of the CIA or FBI or the US presidency.

Here on OpEdNews is an article by George Eliason that reports on who exactly PropOrNot is and who is underwriting the disinformation that is PropOrNot.

A little over a year ago, the deep-state graced the world with Propornot . Thanks to them, 2017 became the year of fake news. Every news website and opinion column now had the potential to be linked to the Steele dossier and Trump collusion with Russia. Every journalist was either with us or against us. Every one that was against us became Russia’s trolls.

Fortunately for the free world, the anonymous group known as Propornot that tried to “out” every website as a potential Russian colluder, in the end only implicated themselves.

Turnabout is fair play and that’s always the fun part, isn’t it? With that in mind, I know the dogs are going to howl this evening over this one.

The damage Propornot did to scores of news and opinions websites in late 2016-2017 provides the basis of a massive civil suit. I mean huge, as in the potential is there for a tobacco company-sized class-action sized lawsuit. I can say that because I know a lot about a number of entities that are involved and the enormous amount of money behind them.

How serious is this? In 2016, a $10,000 reward was put out for the identities of Propornot players. No one has claimed it yet, and now, I guess no one will. There are times in your life that taking a stand has a cost. To make sure the story gets out and is taken seriously, this is one of those times.

If that’s what it takes for you to understand the danger Propornot and the groups around them pose to everyone you love, if you understand it, everything will have been well worth it.

In this article, you’ll meet some of the people staffing Propornot. You’ll meet the people and publications that provide their expenses and cover the logistics. You’ll meet a few of the deep-state players. We’ll deal with them very soon. They need to see this as the warning shot over the bow and start playing nice with regular people. After that, you’ll meet the NGOs that are funding and orchestrating all of it.

Eliason’s article is long and documented. It demonstrates the organized conspiracy against truth that exists in the Western World. Nothing stated in the Western presstitute media and no statement by any Western government or subservient vassal state can be trusted to comply with the facts.

Truth is the enemy of the state, and the state is eliminating the truth.

Peoples in the United States, Europe, Britain, Canada, Australia, New Zealand, and the various vassal states, such as Japan, all live day in, day out, an orchestrated lie that serves interests directly opposed to the interests of the peoples.

Governments that do not rest on truth rest on tyranny.


Lindsey Graham Says Firing Bob Mueller Would “End” Trump’s Presidency – And He Knows That

After helping to blow the lid off “shitholegate” by dropping coy hints about Trump’s foul language during a meeting with a bipartisan group of senators, South Carolina Senator and perennial Trump frenemy Lindsey Graham appeared on the Sunday shows today to defend his erstwhile rival.

In an interview with ABC’s “This Week”, Graham asserted that President Trump’s presidency would end if he did indeed fire Special Counsel Robert Mueller, something the New York Times  reported earlier this week almost happened – but White House Counsel Don McGahn III allegedly stymied the president by threatening to resign.

Graham and fellow Republican “moderate” Senator Susan Collins also urged Congress should move forward on bipartisan legislation preventing a president from firing a special counsel.

Graham’s remarks – which are sure to once again alienate the diminutive senator from the president – show the senator has the “utmost confidence” in Mueller, basically repudiating evidence of Mueller’s conflicts and what some perceive to be suspicious overzealousness that was not applied to Trump’s former rival, Hillary Clint. Read the full transcript.

Oh, yeah, if he fired Mueller without cause — I mean, Mueller is doing a good job. I have confidence in him to get to the bottom of all things Russia. And Don McGahn, if the story is true in The New York Times, did the right thing, and good news is the president listened.

I don’t know if the story is true or not, but I know this Mueller should look at it. I have complete confidence in Mr. Mueller. When he found two FBI agents had a bias against President Trump, he fired them. So, all this stuff about the FBI and DOJ having a bias against Trump and for Clinton needs to be looked at. But I have never believed it affected Mr. Mueller.

So I will do whatever it takes to make sure that Mr. Mueller can do his job. We’re a rule of law nation before President Trump, we’re going to be a rule of law nation after President Trump. I have never any — I haven’t yet seen any evidence of collusion between President Trump and the Russians, but the investigation needs to go forward without political interference and I’m sure it will.

Furthermore, Graham said that the NYT story – which the White House has vociferously denied – is something that “Mueller should look at,” suggesting the special counsel will likely include the question of whether Trump intended to fire him as part of an investigation that has pivoted to focusing on obstruction of justice, not the collusion issue that was long ago proven to be an obvious dead-end.

I don’t know. I believe it’s something that Mueller should look at. We’re not just going to say it’s fake news and move on. Mueller is the best person to look at it, not me opine about something I don’t know. I’m sure that there will be an investigation around whether or not President Trump did try to fire Mr. Mueller. We know that he didn’t fire Mr. Mueller. We know that if he tried to, it would be the end of his presidency.

Trump’s critics like to portray his sometimes boorish behavior as unprecedented in the history of the presidency. But in a thoughtful rebuttal, Graham pointed out that many previous American presidents – and not just Richard Nixon – have tried to discredit or silence their critics. Presidents including Bill Clinton.

GRAHAM: I think every president wants to get rid of critics. I mean, I remember the Ken Starr investigation, and Bill Clinton came out and said this guy spent millions of dollars and nothing to show for it.

Graham also said the American people are smart enough not to convict the president based on a news article, which…though that might be unreasonably optimistic.

GRAHAM: This is for Mr. Mueller to determine. We’re not going to stop looking at the president because he claims The New York Times’ was fake news. And we’re not going to convict him based on a news article. As a matter of fact, I think Mr. Mueller is the perfect guy to get to the bottom of all of this. And he will. And I think my job, among others, is to give him the space to do it. I intend to do that. I have got legislation protecting Mr. Mueller. And I’ll be glad to pass it tomorrow.

* * *

As is often the case given the administration’s preoccupation with television news, more than one Trump ally showed up this weekend to answer the networks’ most pressing questions.

Another one this week was White House Legislative Director Marc Short, who appeared on CBS’s “Face the Nation” to flat out dispute the NYT report, which dominated the political news cycle during a week that also saw Trump impress his fellow leaders with a widely praised speech in Davos.

White House Legislative Affairs Director Marc Short said the president never “intimate that” he intended to fire Mueller – not to Short, or any of Short’s colleagues.

President Trump ordered the firing of Special Counsel Robert Mueller last year, saying at no time did the president “intimate that” to Short or any of his colleagues, according to a transcript.

MARC SHORT: Well, Nancy, the president’s never intimated to me in any way the desire to fire Mueller. I think that there’s been a lot of sensational reporting on that. Let’s keep in mind a few things. That report dates to some June conversation allegedly. We’re now in January. Mueller’s still special counsel. Don McGahn is still running the White House Counsel’s Office. Millions of dollars- of taxpayer dollars have been wasted on an investigation that so far has proven no collusion with the Russians.

Short then set his sights on the investigation, accusing Mueller of deliberately dragging out the process, and criticizing the prosecutor for overreaching by straying so far from the investigation’s stated goal.

Of course it’s not because it’s continuing to drag on. And it’s dragged on for a long time at a great expense with yet no evidence of Russian collusion. And so the reality is that Mueller’s still special counsel. McGahn is still head of the White House Counsel’s Office. The president’s never intimated to me in any way a desire to fire Robert Mueller.

* * *

With Trump set to deliver his first State of the Union on Tuesday (last year’s speech to Congress wasn’t technically considered a “State of the Union ” address, just an address to a joint session of Congress, as is tradition for first-year presidents. So it’s likely that will dominate the Sunday shows next week, along with the political brinksmanship over the immigration-bill compromise that’s threatening to once again shutter the government.

With all this going on, can you believe it’s not even February yet?



Chris Cole: “The Coming Crash Will Be Like 1987…But Worse”

In this week’s MacroVoices podcast, host Erik Townsend interviews Chris Cole of Artemis Capital Management, who famously earned a profile in the New York Times last year after publishing an influential paper about the looming surge in volatility that looks set to upend eight years of relatively sleepy prosperity in financial markets…

In his paper, Cole famously compared financial markets to the ouroboros – the Greek symbol depicting a snake eating itself, which Cole leverages as a metaphor for the contemporary state of financial markets…


As Cole explains, there’s a dangerous feedback loop involving ultra-low interest rates, data expansion, central bank stimulus, and asset volatility. This in turn feeds into a system where funds embracing “risk parity”, “vol rebalancing” and other trend-following strategies can create a vicious feedback loop where rising volatility begets rising volatility until it snowballs into a Black Monday-style 20% crash.

Volatility across asset classes is at multi-generational lows. But there is now a dangerous feedback loop that exists between ultra-low interest rates, data expansion, central bank stimulus, and asset volatility. And then financial engineering that’s allocating risk based on that Volatility.

This is leading into a self-reflexive loop where lower volatility feeds into lower vol. But, in the event that we have the wrong type of shock to the system, I believe this can reverse violently where higher volatility then reinforces higher vol.

This is a much bigger risk in today’s market environment, and it’s one that is not being correctly discounted.

As Cole told the New York Times back in September, he has calculated that, globally, there is some $2 trillion in short volatility trades.

As traders sell volatility, it creates a kind of short gamma effect, whereby other traders must sell even more to get the same bang for their buck.

A few weeks ago, Goldman derivatives strategist Rocky Fishman pointed out that net positioning of VIX ETPs had become short during the preceding weeks for only the second time in their eight year history, prompting Fishman to ask – rhetorically, of course – should we worry?


The obvious answer is “of course we should” as such lopsided positioning means even a three-point jump in the VIX could trigger a cascading short squeeze, as these funds are forced to cover by piling into long-vol trades, potentially crashing the market.

As Cole explains:

This is all great as long as volatility is low or dropping, as long as markets are stable. But, in the event that we have a reversal in this, there’s two trillion dollars of equity exposure that self-reflexive-driving lower vol can reverse in a quite violent way. And this is just equity vol, mind you:

Moving on to another topic that Coletouched on in a paper he published entitled “Reflexivity in the Shadows of Black Monday 1987″Townsend asks him about corporate buybacks, and their presences as a type of “long-vol” influence on the market. As it happens, these buybacks are just one piece of a large, global “short vol” trade.

Townsend asks Cole to elaborate, and Cole explains that explicitly betting on short volatility by buying an inverse-VIX ETF, or directly shorting the underlying options yourself, is only one small component of the $2 trillion figure mentioned above.

The short-vol trade – if you look at short volatility and you think about what volatility really isit’s a bet on stability. And when you’re betting on stability, that’s a myriad of different bets.

Part of that is the expectation that markets remain low volatility or low realized volatility. Part of that is short Gamma – so there is this implicit short Gamma exposure.

Part of that is a bet that correlations remain stable. Or that different market relationships remain anti-correlated with one another. Or that implied correlations are dropping. Or realized correlations are dropping.

And the other aspect of the short-volatility bet is that interest rates remain low or go lower.

So if we look at each of these different factors, these are the risk exposures that you will have when you own a portfolio of short options. And, if you own a portfolio of short options you are short Vega, you’re short Gamma, you’re short correlation, you’re short interest rates.

What we’ve seen now with this short-vol trade, explicitly and implicitly, is that various financial engineering strategies out there that have become dominant in the marketplace – we’re talking about the largest hedge funds in the world employ these strategies – that are just replicating the exposures of a short-options portfolio.

And of course the VIX trade gets a lot of attention, but it’s the smallest portion of the short-vol trade. This is what we call explicitly shorting volatility. This is where you’re literally going out and you’re shorting an option. Or you’re shorting a volatility future.

But in the VIX space, that’s only about $5 billion worth of short exposure. You have about $8 billion of vol-selling funds, according to Bloomberg. And then about $45 billion (estimated) in pension over-writing strategies, these short-port or short-call strategies the pensions are doing.

So, in total, there’s about $60 billion of explicit short volatility. Which is big. But that’s not the most concerning aspect.

The bigger aspect is this $1.4 trillion in implicit short volatility strategies. These are replicating the exposures of a portfolio of short options, even though they may not be directly selling derivatives or directly selling optionality.

Among these implicit strategies are the $600 billion worth invested in risk-parity strategies. $400 billion in volatility-control funds. And about $250 billion of risk premium strategies…


…and then there’s the equity exposure of the CTAs…

…Then, at the bottom of the short-vol pyramid, are corporate buybacks, which have helped prop up the market by BTFDing at every turn.


And it makes sense: How else can a CEO directly influence a company’s EPS? You can’t magically increase sales – there are too many factors that go into that.

But you can pick up the phone and call your broker.

But let’s think about what share buybacks do. If you’re a corporate CEO, you don’t have the ability to generate growth. You can’t generate sales. And you want to get your bonus. So if you can’t generate earnings, if you can’t help your top of the line, what you can do is reduce the number of shares. And this will artificially increase the EPS so you can hit your bonus target.

You go out and you issue debt and you buy back your shares. You’re leveraging the company up – which means that you’re exposed to interest rates, you’re exposed to market stability.

And then you’re buying back your shares, resulting in a price-insensitive buyer that is always underneath the market, resulting in this price-insensitive buyer always buying on market dips.

So, the result of this is that you’re artificially reducing realized volatility. The strategy is always to buy on dips. That is part of the replication strategy of the short-variance swap. Literally it’s
part of the replication of shorting vol.

When you add all of this exposure together, we have this self-reflexive short straddle of financially-engineered strategies in the market. And this really comes out to about $2 trillion worth of implicit and explicit short-volatility strategies. And then you can tack on the share buybacks. To some effect that is resulting in this.

Cole adds one more chilling fact:

Back in 1987, these strategies made up just 2% of the market.

Today, anywhere between 6% and 10% is held in these self-reflexive implicit and explicit short vol strategies.

Infer from that what you will…

Listen to the whole interview below:

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