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Money Daily has been providing business and financial market news, views, and coverage on a nearly continuous basis since 2006. Complete archives are available at moneydaily.blogspot.com.
Money Daily has been providing business and financial market news, views, and coverage on a nearly continuous basis since 2006. Complete archives are available at moneydaily.blogspot.com.
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Federal Government Keeps Digging $28 Trillion Hole Deeper And Deeper
Friday, April 16, 2021, 8:32 am ET
The Dow, S&P 500, and the NYSE Composite each closed at all-time highs Thursday, as initial unemployment claims fell to the lowest level in over a year and first quarter earnings by financial institution boosted sentiment.
According to the US Department of Labor, 576,000 people filed for initial unemployment claims in the most recent reporting period. That figure is the lowest since March 14, 2020, when new claims totaled 256,000.
Though both finished lower on the day, Bank of America (BAC) and Citigroup (C) reported large earnings beats for the first quarter of 2021, largely by drawing down loan loss reserves. The reserves go straight to the bottom line, which is a neat accounting trick in vogue this earnings season. JP Morgan Chase used it to report a near-400% year-over-year EPS gain on Wednesday. While accounting gimmicks may boost a company's bottom line over the short run, they're essentially one-off events, an understanding by Wall Street which resulted in sending the bank stocks lower.
Banks and other companies have to report to shareholders, but that's not the case for the free-spenders in Washington, DC. Congress managed to set two new records in March, neither of which should be cause for celebration by US "shareholders", the American public.
In March 2021, the feds took in $267 billion in tax receipts but managed to spend $927 billion, producing a monthly deficit of $660 billion. The nearly $1 trillion in spending and the mammoth deficit are both record amounts. If the US government was traded publicly as a stock, in normal times it would be drug down and beaten by the Wall Street establishment and be begging for bids.
These, however, are not normal times. The spending and deficit are just more proof that the federal government is completely out of control, about 10 times as large as it should be, and that the people who pass these spending bills don't share an ounce of financial discipline between the lot of them.
The $660 billion just gets lumped into the burgeoning national debt, already at $28 trillion and growing by nearly a trillion dollars per quarter presently.
Media types often blame presidents for growing the debt, but it's congress that has to approve the spending. The president just signs it away, figuratively blowing up the budget with the stroke of a pen. The past few White House occupants have presided over massive spending. Under George W. Bush, the debt nearly doubled, rising from $5.67 trillion in 2000 to just over $10 trillion in 2008. Barack Obama's eight years (2008-2016) nearly doubled it again, to $19.57 trillion. Donald Trump, in his four years, was nearly on track for another doubling had he won a second term. Through fiscal year 2020, the federal debt stood at $26.9 trillion.
Under Biden, his congressional team has been hard at work bankrupting the nation. This year's deficit is already $1.7 trillion, through the first six months of fiscal 2021, and it looks as though it will top the prior year's record of $3.3 trillion. The total debt will be close to, if not beyond, $30 trillion.
Making it personal, since technically, US citizens are on the hook for all this debt (thank you, politicians!), it will amount to over $90,000 per person. To say that we're in debt up to our eyeballs would be an understatement. The country is underwater and drowning and there's no way that massive debt is ever going to be repaid, making all Americans nothing more than debt slaves.
Regardless of the fact that slavery in America was abolished more than 150 years ago, the simple fact is that our own government has run up a debt that puts every man, woman, child, and even unborn generations into financial chains, and we can blame politicians for nearly all of it. In 1913, the year the Federal Reserve System was approved as a central bank by congress and then-president Woodrow Wilson, the total accumulated national debt was just short of $3 billion. The government now spends that in a matter of hours.
World Wars I and II, plus the Great Depression began the borrowing blowout. By 1946, the debt had risen to $269 billion. We scoff at these numbers today as inflation (otherwise known as debasing the currency) has driven economic reality to extremes. Still, in the first 33 years of the Fed, the banking elites had managed to increase the national debt nearly 100-fold. It took another 75 years to increase the debt another 100-fold, putting the government into its present state of insolvency. At the current pace, which happens to be approaching hyperbolic, the government will be borrowing $7 to $10 trillion a year by 2030 and the debt will have risen at least to $65-75 trillion.
Last year, fiscal 2020, interest on the debt alone accounted for more than $500 billion, and that's at ridiculously low interest rates. The size of the federal debt and annual deficits are a primary reason interest rates can never go up again, at least not until some basic laws of mathematics are repealed.
Congress should get to work on that... right after they pass another spending bill and take another two-week recess.
AT THE CLOSE, THURSDAY, APRIL 15, 2021:
Thursday, April 15, 2021, 9:24 am ET
Bank earnings are out. Oh, those paragons of fairness, honesty, and everything good about America. They're kicking in doors and taking names with their first quarter results so far.
Goldman Sachs was the first to rock onward into the second quarter with stunningly-positive results from the first. The investment bank reported revenue of $17.7 billion and GAAP earnings of $18.60 per share, crushing analyst estimates on both earnings and revenue. Goldman Sachs declared a quarterly dividend of $1.25 per share, in line with the previous dividend. The investment banking segment generated record quarterly net revenues of $3.77 billion.
Goldman Sachs was up two percent after the news, but the clincher is how well its done since the start of the manufactured crisis of 2020. The stock has risen from a low of 138 last March to its current price of 335. That's a 142% gain in just over a year's time. Even Bitcoin hodlers can be impressed by those numbers.
JP Morgan Chase, however, really set the tone for the narrative of the current earnings season. By slashing their credit loss reserves by some $5.2 billion - all recorded on the books as profit - they smashed analyst expectations, delivering a quarterly EPS that was nearly 400% better than what they posted in the same period a year ago.
Those results came in on Wednesday. Thursday morning, prior to the opening bell, Bank of America reported, and, right on cue, dropped $2.7 billion from its credit loss reserves, sending that money straight to the profit column. The bank reported EPS of 0.86 per share, as opposed to expectations of 0.65. Without the credit loss provision reclaimed, BAC may have still beaten the estimates, but only by a slim margin.
Citigroup was next up. Net income tripled to $7.94 billion, or $3.62 per share, from $2.54 billion, or $1.06 per share, a year earlier. Analysts on average had expected a profit of $2.60 per share, according to Refinitiv IBES data.
The bank's bottom line was bolstered by its decision to draw down $3.85 billion in reserves it had built up for expected loan losses. So, subtract the reserves from net income and they did $4.09 billion in the quarter. EPS would have been $1.86 per share. Better, but not nearly the blowout quarter they reported.
And so it goes. Banks have everybody believing that the economy is buoyant and thriving and recovering. Other companies in other industries may not meet up to the standards of bang-up earnings the banks have provided because they just don't have as many ways to cook the books.
Sure, it's fine to finally be done with the fake crisis, maybe, and things are getting better, but certainly not as good as the banks' earnings would have one believe.
Stocks are set for a monster open after the Labor Department reported first time jobless claims at 576,000 in the reported week, a one-year low.
Hang on. It's going to be a busy Thursday.
AT THE CLOSE, WEDNESDAY, APRIL 14, 2021:
Wednesday, April 14, 2021, 8:22 am ET
Two seemingly unrelated stories are today's focus, though they may be more relevant to each other beyond a first glance.
On Tuesday, the BLS reported that the Consumer Price Index (CPI) increased 0.6 percent in March on a seasonally adjusted basis after rising 0.4 percent in February. The month-over-month increase was the largest since a 0.6 percent increase in August 2012.
Not seasonally-adjusted, the tally over the past 12 months was 2.6 percent, the highest in 2 1/2 years.
Contributing to the gains were gasoline prices, which were up 22.5% over the past year. Fuel oil and natural gas were respectively 20.2% and 9.8% higher over the same period. Food gained 3.5% and used vehicles gained 9.4%.
Both the Federal Reserve and the White House characterized the increases as temporary, which is what they said last month when the year-over-year number was 1.7%, and the month before that. The problem with "temporary" inflation is that it often becomes permanent. Prices, once they rise, seldom come back down significantly. When they do, the adjustment is either sudden, as in market crashes, or very gradually, as consumers adjust, seek alternatives, or hold back on purchases.
Inflation has been a hot topic since the Fed increased M1 money supply from $4 trillion to $18 trillion in 2020. It is still rising, though at a slower rate, in 2021. Many scholars of economics consider the government numbers to be flawed, as the measure of CPI has changed dramatically over the past 30 years. Hedonic adjustments and the overall makeup of the "basket of goods" the government employs contribute to lowering the CPI, which is used to calculate cost of living adjustments (COLAs) for government pensions and social security benefits. Private and public opinions on CPI range from mildly skeptical to calling it outright fabrication.
The other, still developing, story is that of the Coinbase IPO. The largest cryptocurrency exchange in the United States will begin trading Wednesday on the NASDAQ under the ticker symbol COIN. Coinbase boasts 56 million users and the company became profitable in 2020, with growth accelerating in the first quarter of 2021. The exchange handles billions of dollars worth of transactions daily in Bitcoin, Etherium, Litecoin and other cryptos.
Late Tuesday, the company set a reference price to open at $250 per share in a direct listing, valuing it near $65 billion, well below estimates of $100 cited by some analysts and insiders. The company has foregone the traditional IPO route, instead opting for a direct listing, or DPO (Direct Public Offering), which makes shares available to the general public instead of engaging with a bank and underwriters. This option avoids the usual roadshow and fees while freeing up insider shares with no lockup period. Coinbase is not looking to raise additional capital, but rather to see what the public is willing to pay in a more democratic process. Recent direct listings were undertaken by Spotify and Slack.
Reaction to Coinbase listing as a publicly-traded company has been extremely positive, especially for prices of various cryptocurrencies. Over the past week, Bitcoin, the world leader by market capitalization ($1.2 trillion), has gained 11 percent over the past week, topping out at $64,899.00 Wednesday morning. Being listed on the NASDAQ gives Coinbase and the entire crypto universe credibility as a bona fide asset class.
How the Coinbase listing and the CPI release become interwoven is a matter of imagination and math. The CPI, as a measure of inflation, is based on fiat money in circulation. Since the national debt (actually money owed though bond issuance by the federal government) is a reflection of excessive spending, the more than $28 trillion in debt on the books acts as a drag on the natural economy, measured in fiat, which can be issued without limit. That causes inflation, which is why there is a CPI in the first place.
Most cryptocurrencies, Bitcoin in particular, have a set limit on the amount of issuance. In Bitcoin's case, that number is 21 million. There will never be more than that amount in existence, which adds to its appeal both as currency and as an investible asset. To put the CPI, national debt, and the Coinbase listing in perspective, at Bitcoin's current price and market cap ($1.2 trillion), it would only pay off 4.29% of the national debt.
Another way to look at it would be to figure how much Bitcoin would have to be worth to entirely extinguish the national debt. If all the Bitcoin to be mined (21 million) were mined today, the price of one Bitcoin would have to be $1,333,333.33 in order to pay off what the government owes. This is something the naysayers and no-coiners should bear in mind when dismissing crypto and Bitcoin. Cryptos are better money than what's currently used by the Fed (Federal Reserve Notes, or FRNs, US$) because it cannot be debased, as is happening now and has been happening since the Federal Reserve began issuing its debt notes in 1914.
The idea that some people would prefer a currency that isn't issued by a central bank, has a purchasing power that doesn't depreciate over time, and thus can act as a store of value (wealth) is not new. It's just been out of vogue for the past 100 years or so. Coinbase's public listing and the advance of cryptocurrencies are signals that the time for change is upon us.
AT THE CLOSE, TUESDAY, APRIL 13, 2021:
Tuesday, April 13, 2021, 8:56 am ET
Clearly, something is wrong in what we call our world.
In America, we have imposters occupying the highest elected offices in the land. We are told by the propaganda outlet media that we elected these people, but hardly a man or woman alive believes that to be so.
We've spent the past year fighting a disease that kills fewer people than the annual seasonal flu. We've been told to stay indoors, close businesses, curtail travel, stay away from each other, wear masks and follow guidance from health officials that seems to change as often as the weather. All of it has been extremely dehumanizing.
We are living in a world that most people do not recognize. We long for a return to "normal" existence, whatever that was, but it may not be coming back. We're told to prepare for a "new normal," whatever that might be. It's likely to be distasteful to average working folks and profitable to the elitists and schemers who like to believe they have everything under control when it's obvious that they don't.
For instance, if they really had control over things, would there be $28 trillion in debt as shown graphically at the US Debt Clock? That's something difficult to overlook. Americans are told that we're all on the hook for it, but that's not true. The federal government owes that debt to rich people and other countries. Not really our problem, and most people go about their business without thinking much - if at all - about the burdensome debt overhanging what is essentially a bankrupt, insolvent government.
Instead, we have our own issues and our own debt. We're told that if we continue to make our mortgage payments, eventually, we will own our homes and have vast wealth. As of the fourth quarter of 2020, the median home price in the United States was $346,800. A down payment of 20%, or $70,000, gets one into such a place, granted he or she (usually two people, married) has excellent credit and enough income to make the payments.
Buy a home. Boom, all of a sudden, you're stuck in the matrix to the tune of $1,167 every month for the next 30 years. That's 360 payments totaling $420,120, and that's just the principal and interest. There's upkeep, property taxes, insurance, and the constant inner and external nagging about keeping your credit score high. Don't miss a payment, and, by the grace of God, don't ever lose your job or think about quitting it. You're stuck there and there's no escape.
Certainly, in what we call the real world, there's no chance to get out of what we used to call the "rat race." We now call it - because we're so much more sophisticated and conditioned by fear - the matrix. We can thank two sisters, Lana and Lilly Wachowski for the screenplay that brought about The Matrix series of films and a conceptualization of what our world really is. It was some groundbreaking work and most people are familiar with the story or at least the understanding of being trapped within a system.
Here's the original 1999 trailer:
Predecessors to the matrix "meme" were other dystopian realities, reflected in the works of George Orwell (1984), Aldous Huxley (Brave New World), Franz Kafka (The Trial), and Jean-Paul Sartre (No Exit). Samuel Beckett's Waiting for Godot was a satirical drama written in 1952 which explored the frustrations of living in an uncontrolled reality.
Thus, the concept of being trapped or encaged or under the thumb of oppressive government or society is nothing new. We've been at this point for centuries, but today, it just seems to be worse than ever and maybe it is.
Financially, few can escape. Being very rich has virtues all its own, but there's the slavery of taxation at every turn, the banking system, differentiating currencies and plenty to worry about. Moving to another country may solve part of the problem, and there may be fewer restrictions on one's freedoms in other places, but few can afford to take advantage of such a luxury.
So, we're stuck here in the matrix. Perhaps the only way out is to free one's mind. It's at least worth a try and there are more than jsut a few people who have made their minds up about how they're going to deal with the rules and restrictions, the taxes and penalties for non-conforming, the stomping foot of authoritarianism.
Kirstie Pursey provides a step-by-step approach to freeing one's mind and offers some interesting observations.
The approach is similar to that of author, Carlos Castaneda, who ushered in new age understanding in his writings, especially in his seminal works, The Teachings of Don Juan: A Yaqui Way of Knowledge, 1968,
Here is a selection of his quotations to help get to another level of knowledge and understanding, the beginning of enlightenment, and a forwardly-alternative approach to modern existence.
"Things don't change, only the way you look at them." - Carlos Castaneda
The point is that to escape the matrix of the modern world, as expressed in almost all of the references above, one needs to look inside as well as outside one's own perception. That is the beginning. How one proceeds from there is on a path of one's own making.
... to be continued.
AT THE CLOSE, MONDAY, APRIL 12, 2021:
Sunday, April 11, 2021, 10:27 am ET
In what was a fairly lackluster week in financial markets, equities still managed to ramp higher, with the Dow, S&P 500, and NYSE Composite each closing a new all-time highs on Friday. Still the laggard, the NASDAQ closed out the week fewer than 200 points from it's all-time closing high (14,095.47, 2/12/2021).
The slow churn higher had "stimulus checks" writ large all over it. Pin money freshly distributed from the federal government to its subjects has that kind of effect. Gains were likely hold down by institutional money racking profits on selected issues. With markets soaring, it's worth noting that first quarter results will begin flowing to the street, leading off with bank stocks, the bulk of the biggest reporting this coming week. The most interesting aspect will be whether credit loss reserves are amped up by consumer lenders, those being primarily, JP Morgan Chase (JPM), Wells Fargo (WFC), Bank of America (BAC), and Citigroup (C).
The breakdown of release dates goes like this:
What's expected are solid, if not spectacular, results from the banking sector. As a group, banks and secondary lenders have been shielded from the worst financial effects of the pandemic by easy monetary policies at the Fed, widespread mortgage forbearance, and loose reporting standards. If there's any pain in the sector, it won't be substantial nor widespread.
In the treasury complex, some degree of yield curve control has been undertaken by the Federal Reserve. The 10-year note dropped five basis points over the week, from 1.72% to 1.67%. The 30-year was steady, losing one basis point, from 2.35% to 2.34%. Persistent fears of inflation may be premature or altogether unfounded. The Fed continues to jawbone that rising rates and price inflation are transitory or not sustainable, despite indisputably rising prices for food, many consumer goods, building supplies, durable goods, and transportation.
The Fed seems to have at least one blind eye when it comes to reporting inflation.
Oil continued to trend lower during the week, the price of WTI crude close last Friday (4/2) at $61.45 per barrel and fell out of favor right away Monday morning, ending the session at the low of the week, $58.65. Price did not recover much for the remainder of the week, getting as high as $59.77 before finally finishing Friday at $59.32. The declines over the past three weeks began showing up at the gas pump though the national average, according to AAA, remains elevated, at $2.86 a gallon.
States bordering the Gulf of Mexico appear to be declining fastest, a trend that could spread North and West should the decline in oil pricing extend into summer months.
Cryptocurrencies made some noise during the week as the total market cap for the entire crypto space topped $2 trillion, with Bitcoin holding the bulk of that, $1.1 trillion. The granddaddy of crypto popped above $60,000 early Saturday, as a massive spike late Friday night boosted the price from $58,000 to $61,218.97 as of 1:00 am ET Saturday.
The move marked the second time the price of Bitcoin had exceeded $60,000, the first such occurrence less than a month prior, on March 13, when it reached an all-time high of $61.788.45. Etherium has also been on a tear, rising nearly 20% in the past month to its current level, above $2,100. Crypto news reports were understandably excited, with predictions of BTC $200,000 and higher were being circulated once again.
To say the least, remarks by the SEC's Hester Pierce (aka Crypto Mom) that "you'd have to shut down the internet" in order to ban bitcoin or cryptocurrencies, were impactful. After noting that the window of time for banning Bitcoin has passed, she further added, "I don't see how you could ban it. You could certainly make the effort. It would be very hard to stop people from [trading Bitcoin]. So I think it would be a foolish thing for the government to try to do that."
What Pierce pointed out has been the general thinking inside the crypto community for some time. Governments around the world surely would like to regulate currencies, be they foreign, domestic, cash, gold, silver, jewels, bitcoin or barter, but there's a major barrier to outright banishment, being that cryptocurrencies are peer-to-peer, decentralized, and outside the realm of fiat currencies. There's no need nor want for government involvement. Government and central banks are just going to have to learn to deal with a multi-currency world going forward, one which is very likely to be dominated by non-government-based currencies with transparent, though largely untraceable, transactions.
Related, gold and silver investors finally caught a break, with precious metals showing signs of bottoming over the past week. With gold falling as low as $1685.25 (3/30), it ended last week (4/2) at $1729.80. Through Friday's close in New York, gold finished at $1744.10, though it had risen to $1756 just a day before.
The outlook was also enthusiastic for silver, which ended the week at $25.25, but had been as high as $25.58 on the COMEX Thursday. Both metals have been recently downtrodden, some say due to the emergence of bitcoin and crypto in general as an alternative, while others complain of price manipulation via the LBMA price fixes and COMEX futures trading. The truth probably lies somewhere in between.
Presented below are the most recent prices paid for common one-ounce gold and silver items on eBay (numismatics excluded, shipping - often free - included):
Item: Low / High / Average / Median
This week's survey revealed a couple of interesting side notes, especially pertaining to gold coin availability. Searches on eBay for gold coins without numismatic significance, like SA Krugerrands or US Eagles, have been in decline for months, but this week were extended. The common search for "1 oz gold coin" lasted through nearly 500 entries before finding a dozen samples representative to Money Daily standards. This indicates that gold coins are being hoarded, which would make plenty of sense, since the price of gold has been lower recently and gold coins are the standard for individual investors.
In that same vein, prices for gold bars were seen to be roughly $100 lower in the sample and there was an abundance of them available. That particular price differential has been noted before, though this gap is the largest in more than a year of tracking prices and the gap seems to be widening.
On the silver side of the ledge, the opposite was the case. On average, a silver bar was selling for $1.40 more than a silver coin, with the median price showing a $2.85 gap ($40.00 vs. $42.85). The simple conclusion is that gold coins of similar weight are worth more than gold bars, while the opposite is true - though to a lesser extent - for silver. In the end, all these samples are one ounce. The difference in price is likely an anamalous preference.
Money Daily's silver pricing model, Single Ounce Silver Market Price Benchmark (SOSMPB) stands at $41.71, down 43 cents from last week's $42.14, though still comfortably in the range above $40/troy ounce.
AT THE CLOSE, FRIDAY, APRIL 9, 2021:
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