The Morning Line

Bloomberg missed the real news in its flippant headline, "Return to the Office Five Days a Week? How About Never Again". The article was just family-page pap about how work-from-home employees aren't complaining about the indefinite postponement of a back-to-the-office mandate. With the delta variant on a headline rampage, exile in suburbia seems to suit most of them just fine, and to hell with the 6:00 a.m. commute. The much bigger meaning of this is certain to become the subject of newspaper headlines in years to come, when America's biggest cities are further along the road to bankruptcy and obsolescence. Bloomberg's editors will probably be the last to see this trend developing, so eager have they been to cheer-lead New York City's supposed recovery from the lockdown. They would have readers believe, for one, that the billionaires who fled to Florida, which has no income tax, are eager to return to the Big Apple, where they would face an 11% income levy just for the privilege of watching DeBlasio run New York even deeper into the ground. Paper-Shuffling Sector Bloomberg.com's blithe optimism aside, it's painfully obvious that the U.S. economy, most particularly the colossally large paper-shuffling sector, no longer needs skyscrapers to conduct business. Nor will workers have much use for the services and amenities associated with those skyscrapers and with city life itself. This implies that buses, trains, trolleys and taxicab fleets, restaurants, stores, concert halls, parks, theaters and so many other things that make urban living worth the hassles will be used less and less over time. Do you see the economic problems this will create? If Bloomberg's editors do, they didn't say so; for nowhere in the article was there any mention of the fact that user-based revenues associated with urban amenities will either have to be

If you're worried that interest rates are about to explode because of inflation, the graph above would seem to offer comfort. From a visual standpoint, the gentle rollover that has occurred over the last several months has sapped the vigor from a menacing spike that had pushed yields on the 10-Year Note from 0.40% at the start of the pandemic to a high of 1.76% in early April. The surge also failed to surpass previous highs near 2%, suggesting there is considerable resistance at that level. For the time being, this holds positive implications for the U.S. economy, since T-Note rates largely determine how much mortgage and corporate borrowers must pay for loans. It also helps to sustain the illusion of a stability in the global banking system. That's because even a small tightening of the interest rate screw would have dire consequences if applied to the $2 quadrillion of borrowing amassed in the derivatives market. These financial instruments are used ostensibly for hedging, but over time their use has expanded to accommodate leveraged speculation on a cosmic scale. A Network of Nerves What would it take to crash this market? No one has a clue, although it is probably fair to say that it is as complex, and therefore ultimately as fragile, as a human nervous system. The synaptic connections are based on trust rather than neurons, however, and that is why a systemic failure would likely be total rather than merely in one "hemisphere" or the other. A further implications is that if stress levels got high enough, something akin to a stroke would result. Fortunately, with ten-year rates at a current 1.24%, we are well below the danger zone. That's equivalent to a blood-pressure reading of perhaps 130/80. Realize, however, that this seemingly normal reading exists only

My astute friend Greg Hunter at USA Watchdog weighed in recently with such a despairing outlook for the dollar that it's probably a good time to determine whether the charts support this view. Here’s the post from his site, which over the years has featured my own thoughts on deflation, the global economy and other topics: The Fed keeps telling us that inflation is going to be transitory, and things will fall in price and go back to normal soon. Nobody is buying this in the real world where people are watching their dollars fall in value and are paying more for just about everything. In simple terms, the dollar is tanking. Maybe this is why JP Morgan is the first big bank (with many to follow) that is putting high-net-worth clients into crypto currencies. Bo Polny says this is all part of a “Jubilee year which began in September of last year and ends in early September of this year.” Polny says, “Expect to see in the next four to five weeks a fall of the dollar, the world’s reserve currency. This could start as early as next week causing a run into tangible asset that include gold, silver and crypto currencies like Bitcoin. All hell is about to break loose on evil.” Sounds ominous, for sure. However, it flatly contradicts a forecast I’ve held to for decades – that deflation would ultimately wreck the global economy, driving the dollar into such scarcity that many, if not most, Americans would have to barter to survive. This may seem hard to believe at the moment, given the Fed’s unprecedented monetary blowout and the illusory prosperity it has created. Most of the digital cash has gone into investable assets, triggering a seemingly unlikely run-up in stocks during a year of Covid

The latest attempt to move the global economy away from the dollar’s dominance involves a plan by Biden to issue $650 billion of Special Drawing Rights (SDRs) through the IMF. Ardent fans of the greenback needn't worry, however, since this sum, as large as it seems, is just a drop in the bucket compared to a derivatives market that supplies more than $2 quadrillion to the world’s biggest financial players. The dollar is the only currency big enough to handle their action, which dwarfs global trade in actual goods and services of no more than $90 trillion. Under the circumstances, it’s unlikely the dollar will be replaced any time soon. The $650 billion supposedly will enhance global liquidity, as though more liquidity were needed in a world where financiers can borrow practically unlimited quantities of money for next to nothing.  China’s communist government is backing the SDR expansion, although for reasons that are doubtless different from Biden’s. One suspects that globalists have Biden’s ear and that he is unwittingly going along with them because, well, because he was witless to begin with. For its part, China undoubtedly thinks more funny-money loosed in the ether can only be a good thing, since the CCP's main enterprise these days is helping poor countries go deeper into hock for Belt & Road projects. Pinto Beans for the Poor The SDR initiative is being touted as a way to make the world more “green” and “sustainable,” which is another way of saying that anyone who opposes it is trying to make life even more miserable for the poor. Arguably, they will in fact be better off, since even if $600 billion of Biden’s giveaway goes toward purchasing fleets of Bentleys and sumptuous vacation homes for Third World dictators, the $50 billion that eventually trickles

Rick's Picks subscribers ended the week transfixed by a powerful rally in the E-Mini S&Ps whose inevitable destination was 4362.25. Why inevitable? Mainly because a chat-room ace whose trading system has been getting the big swings exactly right lately had said so the day before. If he were a pistol sharpshooter, this trick would be akin to turning a Roosevelt dime into a pinky ring at fifty paces. For not only had he chiseled the 4362.25 target in stone, he also provided the time of day when a profitable short position he'd advised earlier was to be exited and reversed for a further gain of as much as $3000 per contract.  You'd have to have been there to believe all of this, but even allowing for a little hyperbole, the feat handily refutes 'fundamentalists' who think technical analysis is voodoo. Fools Well Equipped Surprising as it may seem, however, the ability to predict trend and target with seemingly uncanny precision does not guarantee easy profits.  On the contrary, the opposite sometimes obtains, since the violent countertrend swings that invariably punctuate rallies tend to shake the confidence of even the most fervent believers.  In technical terms, it is a matter of valleys exceeding peaks as a stock makes it way higher. Thus does each $3 leap beget a pullback of $2 or more, subjecting the trader to at least $2 of risk for each new $1 of profit gained at the next high. Since no prudent system for managing risk can survive this rollercoaster ride, it is mostly fools who get rich, at least for a while, staying with spectacular rallies. Experienced traders understand that corrections tend to be as vicious as trends are steep, a fact that impels them to take partial profits on the upswings.  One can always play

I was premature when I gave the green light to gold bulls five weeks ago.  "If you’re a bullion investor," I wrote at the time, "you can buy the stuff now without fear or qualm." Had you taken this advice, you'd have gotten aboard just in time to get smashed in the head, since gold was about to have its worst week in six months. I made my recommendation seem even more foolish by running it under the headline Gold Really Sucks. Here's Why.  This was just a ploy to grab the attention of gold bulls, since the commentary itself, as readers soon realized, was quite bullish. So what changed my mind?  I'd like to say that fresh evidence on the charts swayed me. In fact, I actually ignored a flashing-yellow signal early in March, when GDX, the gold miners ETF, breached a key low at 31.22 from nine months earlier. This is shown in the chart, and it created a glow-in-the-dark 'impulse leg' that was unmistakably bearish. Unfortunately, my focus was elsewhere, mainly on a few subjective factors that were bound to mislead anyone looking for a long-elusive ray of sunshine in precious metals. For one, I noted, bitcoin was finally getting its comeuppance, presumably freeing up speculative energy for bullion. And for two, there had been no vicious takedowns in gold recently, ostensibly because the bad guys finally realized it was time for gold to start discounting the rising crescendo of inflation fears.  I was wrong on both counts, for gold and silver were about to get hit with their steepest two-day sell-off since November. Further selling mercifully stalled, but the jury is still out on whether another wave is coming. Rallies Died It took an email from a correspondent to open my eyes to the bearish reality

Fear of the much-ballyhooed Delta variant was nowhere in evidence recently at North Carolina's McCormick Field, home of a minor-league baseball team called the Asheville Tourists. The team, a high Single-A farm club operated by the Houston Astros, filled McCormick's 4000 seats to near-capacity, and there was nary a mask in sight. It was great baseball, which turns out to be the perfect antidote for non-stop Covid doomsday-porn emanating from Fauci's office and amplified to a deafening pitch by his ignorant, Great Reset-obsessed lackeys in the news media. As fans of the game might expect, it featured entertaining highs and lows just like the majors. A towering pop-up above second base attracted enough fielders to catch a swarm of fireflies; instead, they caught nothing when the ball dropped between them. But a runner on first base looked even worse when he failed to keep running past second base even though there were two outs.  The defense redeemed itself with a spectacular diving catch in the ninth inning by the Tourists' center fielder -- a risky effort, considering there were no men on base and his team had a four-run lead.  Afterward, a terrific fireworks display sponsored by chain-grocer Ingles, rocked the neighborhood. 'Delta' Thrives on Ignorance For the good of America, Fauci and his Goebbelsian PR crew should take in a few baseball games this summer. Otherwise, they'll continue to work overtime trying to convince us that 'Delta' is the most menacing development in all of history. But when was a virus variant ever more deadly than the original strain? If this were so, the variant, even if it tends to spread more easily, would quickly extinguish itself by killing off the host. Under the circumstances, how dangerous could it actually be, given that more than 99% of those who

[The following was written by a San Francisco friend from the hedge fund world, Shawn Brown. It buttresses the suspicion that while there seems to be plenty of credit money available for speculation, the collateral behind it is getting thinner and shakier by the week.  The Fed, with $8 trillion of Treasury paper and other top-shelf collateral on its balance sheet, has monopolized the supply, leaving lending banks to scramble for collateral of their own that hasn't already been hocked twentyfold. As a result, central bank interventions are becoming more frequent, more complex and bigger, to the point where even the experts are having trouble determining whether the banking system is headed for a crack-up far larger than the one that took down Archegos a few months ago.  RA] Why is the Reverse Repo Facility breaking records daily and the Federal Reserve returning hundreds of billions in foreign currency swaps weekly?  These two concerning but mostly overlooked items seem to coincide with Bill Hwang’s disaster at Archegos Hedge Fund. We still have very little clarity on exactly what happened with conflicting reports on the actual fallout. Whether the fund was naked short derivatives or concentrated long media companies, these positions resulted in tens of billions in losses to a number of Too Big To Fail banks. Whatever occurred, shock waves are still rumbling throughout the intertwined global financial system. Who Are Those Guys? The current explosion of usage from the Fed’s Reverse Repo facility began on March 26 -- the same day Archegos ceased operations -- with 12 Participating Counterparties exchanging $11.45 billion for Treasury securities. We aren’t allowed to know who they were because it might cause a run on the institutions, or so the story goes.  Fast forward to this past Friday morning and 61 Counterparties wanted to

Flush with stimulus, the states are in a spending mood that can be summed up in a single word:  TOGA!!!!!  Take Oklahoma. Their latest budget reflects an annual increase of nearly 18%, according to a report from the Associated Press. It includes bigger earmarks for education, corporate and personal tax cuts, credits for school choice and even for film producers.  In Florida, outlays will rise by about 11% to a record $101.5 billion.  The extra spending will provide "bonuses for teachers, police and firefighters, and new construction projects at schools and colleges."  Believing they will still have money to spare, Florida lawmakers have also expanded sales-tax breaks for school and hurricane supplies and created a tax-free week for purchasers of museum and concert tickets and recreational gear for camping, fishing and surfing.  In New York, a $212 billion budget is nearly 10% higher than last year's, most of it coming from Federal relief. The Cuomo government is planning to boost aid to schools by $1.4 billion, and spend another $1.3 billion to overhaul Penn Station, among other projects. What Could Possibly Go Wrong? Federal aid amounts to fully 15% of what the states took in during fiscal year 2019, according to Moody's. Since they have until 2024 to spend the most recently disbursed Covid money, some states are waiting until later in the year to budget their windfalls. No question, increased spending by the states will have a bullish impact on the U.S. economy for the next several years. Even so, some are wondering what will happen when the money runs out. “I’m afraid that we are spending money and making commitments that we will not be able to sustain once that one-time federal money goes away,” said Sen. Bob Rankin, a Republican who sits on Colorado's joint budget committee.