The End of (Artificial) Stability


By Charles Hugh Smith

So, has anything actually changed in the past two weeks? The conventional bullish answer is no, nothing’s changed; the global economy is growing virtually everywhere, inflation is near-zero, credit is abundant, commodities will remain cheap for the foreseeable future, assets are not in bubbles, and the global financial system is in a state of sustainable wonderfulness.

As for that spot of bother, the recent 10% decline in stocks: ho-hum, nothing to see here, just a typical “healthy correction” in a never-ending bull market, the result of flawed volatility instruments and too many punters picking up dimes in front of the steamroller.

Now that’s winding up, we can get back to “creating wealth” by buying assets — $2 million homes in Seattle that were $500,000 homes a few years ago, stocks, bonds, private islands, offshore wealth funds, bat guano, you name it. Just borrow whatever you need to borrow to buy more.

(But don’t buy bitcoin. No no no, a thousand times no. It is going to zero, Goldman Sachs guaranteed it.) Ahem.

And then there’s reality: something has changed, something important.

What changed?

The endlessly compelling notion that risk has magically vanished as the result of financial sorcery is now in doubt.

How did we get here? And how can central banks “retrain” participants to accommodate new conditions?

Human habituate very easily to new circumstances, even extreme ones. What we accept as “normal” now may have been considered bizarre, extreme or unstable a few short years ago.

Three economic examples come to mind:

1. Near-zero interest rates. If someone had announced to a room of economists and financial journalists in 2006 that interest rates would be near-zero for the foreseeable future, few would have considered it possible or healthy. Yet now the Federal Reserve and other central banks have kept interest rates/bond yields near-zero for almost nine years.

The Fed has raised rates a mere .75% in three cautious baby-steps, clearly fearful of collapsing the “recovery.”

What would happen if mortgages returned to their previously “normal” level around 7% from the current 4%? What would happen to auto sales if people with average credit had to pay more than 0% or 1% for a auto loan?

Those in charge of setting rates and yields are clearly fearful that “normalized” interest rates would kill the recovery and the stock bubble.

2. Massive money-creation hasn’t generated inflation. In classic economics, massive money-printing (injecting trillions of dollars, yuan, yen and euros into the financial system) would be expected to spark inflation.

As many of us have observed, “official” inflation of less than 2% does not align with “real-world” inflation in big-ticket items such as rent, healthcare and college tuition/fees. A more realistic inflation rate is 7%-8% annually, especially in the higher-cost regions of the U.S.

But setting that aside, there is a puzzling asymmetry between low official inflation and the unprecedented expansion of money supply, debt and monetary stimulus (credit and liquidity). To date, most of this new money appears to be inflating assets rather than the real world. But can this asymmetry continue for another 9 years?

3. Stock markets soared but sales and profits are stagnant. Everyone knows central banks are still pumping billions of dollars per month into the financial system, and this (coupled with central bank purchases of stocks and bonds) has been pushing stocks sharply higher for the past 9 years, with only a few hiccups along the way.

This has pushed valuations out of alignment with traditional metrics of valuing assets such as sales and profits — a process known as “price discovery.” In essence, traders and investors have habituated to central banks driving private-sector markets higher, not because the assets are generating more value or profits. but simply as a function of centralized money creation and asset purchases.

All of these extremes generated mal-investment, diminishing returns and perverse incentives for ramping up unproductive and risky speculation, leverage and debt. Yet the central banks have trapped themselves in this risky trajectory because they’ve pushed the accelerator to the floorboard for 9 years. Any extreme held in place for 9 years has long slipped from “temporary” to permanent.

Participants have now habituated fully to central banks extreme stimulus of financial markets, and in a sense they’ve forgotten how to price assets based on real-world private-sector measures.

But now the Fed is taking the punch bowl away with quantitative tightening. It’s beginning to destroy the money that propped up markets.

And volatility has returned to the markets.

Risk cannot be made to disappear; it can only be transferred onto others or off-loaded into the financial system itself.

Though no one in the financial sector dares say this in public, the possibility that central banks can no longer sustain the illusion that risk has been vanquished is now front and center.


This post The End of (Artificial) Stability appeared first on Daily Reckoning.

The central banks’/states’ power to maintain a permanent bull market in stocks and bonds is eroding.

There is nothing natural about the stability of the past 9 years. The bullish trends in risk assets are artificial constructs of central bank/state policies. As these policies are reduced or lose their effectiveness, the era of artificial stability is coming to a close.

The 9-year run of Bull-trend stability is ending as a result of a confluence of macro dynamics:

1. Central banks are under pressure to reduce, end or reverse their unprecedented monetary stimulus, and the consequences are unpredictable, given the market’s reliance on the certainty that “central banks have our back” is ending.

2. Interest rates/bond yields may well plummet in a global recession, but if we look at a 50-year chart of interest rates, we see a saucer-shaped bottoming in play. Technician Louise Yamada has been discussing the tendency of interest rates/bond yields to trace out a multi-year saucer bottom for over a decade, and we can now discern this.

Even if yields plummet in a recession, as many analysts predict, this doesn’t necessarily negate the longer term trend of higher yields and rates.

3. The global economy is overdue for a business-cycle recession, which is characterized by a retrenchment of credit and the default of marginal debt. The “recovery” is the weakest recovery in the past 60 years, and now it’s the longest expansion.

4. The mainstream financial media is telling us that everything is going great in the global economy, but this sort of complacent (or even euphoric) “it’s all good news” typically marks the top of stocks, just as universal negativity marks secular lows.

5. What happens to markets characterized by uncertainty? Once certainty is replaced by uncertainty, markets become fragile and thus exposed to sudden shifts of sentiment. This destabilization is expressed as volatility, but it’s far deeper than volatility as measured by VIX or sentiment indicators.

Market participants have become accustomed to an implicit entitlement: that investors/speculators will earn consistently positive returns on their capital, as central banks and governments have both the power and the mandate to “save” participants from losses and generate phantom wealth (“gains”).

This entitlement is ending, and I suspect few participants have a strategy for a permanently riskier environment going forward.

[Ed. Note: go here to learn about one powerful strategy that could help you thrive in this new environment.]

How much will risk assets have to decline for “wealth” to return to the production of real-world wealth in the real-world economy? Clearly, the answer is “a lot.”

The illusion that risk can be limited delivered three asset bubbles in less than 20 years.

So, has anything actually changed in the past two weeks? The conventional bullish answer is no, nothing’s changed; the global economy is growing virtually everywhere, inflation is near-zero, credit is abundant, commodities will remain cheap for the foreseeable future, assets are not in bubbles, and the global financial system is in …read more

Source:: Daily Reckoning feed

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Weekend Show – Sat 24 Feb, 2018

By Cory A Full 2 Hours On Gold, Interest Rates, and Debt

Download audio file (0224-Full-Weekend-Show.mp3)

On this week’s weekend show Al is taking the week off so you get a full 2 hours of investing and market commentary! I lined up a great roster of guests and the focus is on the metals markets. We also talk a lot about raising interest rates, how they impact the growing debt, and if precious metals can rise in this environment.

This week was another busy one in terms of company updates. Please click the links below and let me know what you think of the companies. I love hearing from all of you, feel free to email me at My wife and I are moving this weekend so I might be a bit slow responding.

Segment 1: Jesse Felder, Founder of The Felder Report kicks off the show with his assessment of the overall value in the gold sector.
Segment 2: Jordan Roy-Byrne of shares why he thinks a drop in the gold stocks to the December 2016 low would be good for the sector.
Segment 3: We have talked a lot about how investors are distracted from the metals sector. Byron King shares what those distractions are.
Segment 4: Technical analyst and Canamex CEO David Vincent looks at the correlation between the copper:gold chart and interest rates.
Segment 5: John Kaiser and I discuss the potential of an upcoming PDAC curse.
Segment 6: We step out of the gold sector with Jayant Bhandari. He shares his thoughts on the changes going South Africa and Canada’s Prime Minister Justin Trudeau’s trip to India.
Segment 7: Chris Temple addresses the topic of manipulation vs suppression in the gold market.
Segment 8: We wrap up this week with CPM Group Managing Partner Jeff Christian and his outlook for gold over the next 5 years.

Exclusive Company Updates and Introductions

Miramont Resources – Ready To Drill and Waiting On Permits
Osisko Metals – The Exploration Strategy In 2018

First Cobalt – A Cobalt Company With A Big 2018 Planned

Novo Resources – Answering All Your Questions on Exploration Moving Forward

Segment 1

Download audio file (0224-1-1.mp3)

Segment 2

Download audio file (0224-1-2.mp3)

Segment 3

Download audio file (0224-1-3.mp3)

Segment 4

Download audio file (0224-1-4.mp3)

Segment 5

Download audio file (0224-2-1.mp3)

Segment 6

Download audio file (0224-2-2.mp3)

Segment 7

Download audio file (0224-2-3.mp3)

Segment 8

Download audio file (0224-2-4.mp3)

…read more

Source:: The Korelin Economics Report

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Haunted by Ghosts of the Old Eastern Bloc

By MN Gordon

Ridiculous Minutia

Jerome Powell, the new Chairman of the Federal Reserve, just completed his third week on the job. He’s hardly had enough time to learn how to operate the office coffee maker, let alone the all-in-one printer. He still doesn’t know what roach coach menu items induce a heinous gut bomb.

The perpetually slightly worried looking new Fed chairman Jerome Powell, here seen warily inspecting the Rose Garden at the White House. Everybody wants to know if he has a “better plan” – but there is no better plan, thus no-one has one. [PT]

Photo credit: A. Brandon / AP

Yet across the planet, folks high and low are already telling him exactly how he should do his job. What’s more, they’re passing advance judgment on things that may or may not happen. For example, the South China Morning Post recently offered the following opinion:

“President Donald Trump may have done Janet Yellen a favor by not giving her a second term as Chairwoman of the Federal Reserve. Her successor, Jerome Powell, may have inherited a poisoned chalice. The Fed will have to up the pace of U.S. rate hikes or risk accusations of being behind the curve as markets react to signs of rising inflation.”

When Powell showed up to work on February 5, for his first day on the job, the general consensus was that the Fed would raise the federal funds rate three times this year, at 25 basis points – or 0.25 percent – per increase. But now that consumer prices are rising at an annual rate of 2.1 percent, average hourly earnings are increasing at an annual rate of 2.9 percent, and Congress has passed a massive two year budget deal, twitchy economists are questioning if three rate hikes will be enough to keep inflation in check.

Over the last two weeks their chants for four rate hikes in 2018 have grown louder. Goldman Sachs has even floated the five rate hike scenario.

Alas, this is the sort of ridiculous minutia that policy makers and analysts must navel-gaze over in a planned economy. The truth is, Powell can’t win regardless of what he does. Whether he raises rates three times or four times – or ten times – he’ll get it wrong. Here’s why…

How interest rate policy decisions are made in real life. Leaving aside the fact that there actually shouldn’t even be such a thing as an “interest rate policy”, this is actually not worse than any other method. [PT]

Chronic Shortages

The economy is a complex living organism that’s continuously evolving and always subject to change. One relationship at one moment can be completely different at another moment. Supply and demand are incessantly adjusting and readjusting to meet the conditions of the market.

These continuous interactions provide a natural and efficient response to supply shortages and gluts. Even in a moderately free market economy, bakeries do not run out of bread when there is a wheat crop shortage due to a late season frost. The shelves never go …read more

Source:: Acting Man

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Galician MP denounces tailings pond breach

By analyst

By Valentina Ruiz Leotaud

Member of the European Parliament Lídia Senra filed a complaint before the European Commission denouncing the breach of a tailings pond in the Touro municipality, located in the Galicia autonomous community, northwestern Spain.

The tailings pond was part of an old copper/gold mining complex operated by the Mining and Metallurgical Society of Peñarroya and Río Tinto Patiño. According to the MEP, the breach took place on February 15, 2018, and the wastewater ended up in the Brandelos river, located only 100 metres away from the facility.

In the dossier she presented in Brussels, Senra states that the accident is a clear example of continued violations of European normative. In particular, she said, it violated Directive 2006/21 / EC on waste management in extractive industries and Directive 2004/35 / EC on liability and reparation for environmental damages.

The politician argues that the companies responsible for the mining operation, the Xunta de Galicia and the Spanish state government are also ignoring the Water Framework Directive 2000/60 / EC, for not doing anything about the continued contamination caused by the mine to the environment, small tributaries of the Ulla river and the Arousa estuary.

“We are talking about a problem that transcends the site, that goes far beyond Toro and that pollutes everything from the grasslands next to the Toro streams to the shellfish banks,” she said in a media statement, where she also highlighted that after visiting the site she noted that everything below the mine is dead and everything above the mine is clear and alive.

Senra asked the European Commission to take action right away and do whatever it takes to prove whether or not government and mining companies are following the bloc’s regulations. She believes that breaches of environmental laws have been taking place for decades now.

This is not the first time the MEP approaches a European body about this topic. Back in October, Senra informed the plenary session of the European Parliament in Strasbourg of the continued dumping of toxic waste that was happening in Touro, while the ancient mine’s facilities were not being monitored by anyone. After showing photos of the state of the rivers in the area, she asked for an independent investigation to be carried out as soon as possible.

To keep the momentum going, on Sunday, the politician will take part in a demonstration organized by civil society against what’s going on at the mining site.

The post Galician MP denounces tailings pond breach appeared first on

…read more

Source:: Infomine

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Vancouver company obtains positive results in process of extracting metals from petcoke

By analyst

By Valentina Ruiz Leotaud

After receiving positive results from petcoke samples obtained from Alberta oil sands and refinery sales stockpiles of available petcoke, MGX Minerals (CSE: XMG) said that it will proceed with its previously announced partnership with Highbury Energy to develop a detailed thermochemical gasification process to extract nickel, vanadium, cobalt and hydrogen from petroleum coke.

In detail, the plan is to generate hydrogen gas and concentrate metals in the form of ash byproduct. Since petcoke is itself a carbon byproduct of the oil refining process, it concentrates the denser impurities found in the base material, which is bitumen. Such impurities are usually the aforementioned metals and sulphur compounds the companies are aiming to extract.

In a press release issued Friday, MGX explained that the oil sands sample yielded 421 ppm of vanadium, 4.8 ppm of cobalt and 76.8 ppm of nickel. The second sample, obtained from the stockpiles, yielded 458 ppm of vanadium, 1.3 ppm of cobalt and 53.4 ppm of nickel.

“Further analysis of concentrate post-gasification ash samples is now underway with ash amounting to 3% of oil sands petcoke by weight and less than 1% of the refinery petcoke sample. It is expected that the concentrations of metals will directly correspond with the reduction in material, approximately 30x and over 100x, respectively. Analyses of the ash concentrate are expected shortly,” management said in the media statement.

MGX also announced that Phase II of the study is currently being completed by Highbury and will include analyses of potential site locations, most likely in Alberta where petcoke inventories were estimated in 106 million tonnes in 2016. The second phase would also study the inclusion of pilot scale gasification, advanced metals extraction process design and initial plant design parameters, the company revealed.

The post Vancouver company obtains positive results in process of extracting metals from petcoke appeared first on

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Source:: Infomine

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German scientists to build machine that speeds up urban mining processes

By analyst

By Valentina Ruiz Leotaud

Scientists at the Fraunhofer Institute for Laser Technology ILT in Aachen, Germany, want to build a machine that is able to disassemble two mobile phones in one minute and remove its components to, later on, extract metals from them.

The process is known as urban mining and it aims to recover raw materials such as copper, silver, gold, neodymium, and tantalum from old electronic devices. The metals would be destined to the production of new cellphones, computers, tablets, etc.

Following the extraction of individual, larger components, a laser would be used to unsolder them from the electronic circuit board before they are sorted by type and treated differently to make them reusable.

In an interview with Horizon Magazine, Cord Fricke-Begemann from the Fraunhofer Institute said that the main challenge his team is facing right now, when it comes to the machine’s design, is figuring out how to make it work with all the different types of electronics that exist.

“There are hundreds of different types of mobile phones so we need a device that is flexible and can handle all of them,” Fricke-Begemann told the institutional publication.

According to the researcher, turning to this type of mining and making it more efficient would not only support the EU efforts to move towards a low-carbon economy, but it would also reduce the bloc’s dependence from foreign metal providers and shield it from fluctuating prices.

According to Horizon, some urban mining already takes place in the region but it involves melting devices together in a furnace and removing the most valuable metals.

The post German scientists to build machine that speeds up urban mining processes appeared first on

…read more

Source:: Infomine

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Richard Postma – The Doctor Is In – Fri 23 Feb, 2018

By Cory Timing The Gold Market and Gold Stocks

Doc joins me today to share his thoughts on the metals sector. I know it feels like we are constantly talking about having to wait for a breakout but we point to recent news from majors and junior companies that are not moving the stocks at all.

Download audio file (2018_02_23-Doc.mp3)

…read more

Source:: The Korelin Economics Report

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Exclusive KE Report Commentary – Fri 23 Feb, 2018

By Cory Trader Vic – The Debt Problem With Raising Rates

Trader Vic Sperandeo joins me to outline a recent article he shared with his audience. It is focused on the massive amount of leverage in the global financial markets and the increase we will see in US debt thanks to the new budget.

Download audio file (2018_02_23-Trader-Vic.mp3)

…read more

Source:: The Korelin Economics Report

The post Exclusive KE Report Commentary – Fri 23 Feb, 2018 appeared first on Junior Mining Analyst.