@derryb said:
Bought a load of NUGT at 27.50. Quantative Tightening (QT) and rising rates should bode well for the gold miners.
@derryb said:
Bought a load of NUGT at 27.50. Quantative Tightening (QT) and rising rates should bode well for the gold miners.
Why derryb? I'm not of the opinion the miners can't bounce, but just 2 years ago the miners were supposed to go up because of QE and easing rates. Now they are supposed to go up for the opposite reasons?
This intermarket relationship stuff ain't so simple, is it?
Sure it is. Your next financial crisis is going to be a cash deposit crisis.
QE pumped up bank deposit reserves (this is what allows them to pass the "stress" testing). Between 2009 and 2014 bank reserves increased by $2.5 trillion of excess deposits as a direct result of the Fed’s QE. QT will drain those reserves. Currently, cash is being hoarded. According to CNBC the world’s 2,473 billionaires are hoarding 22.2 percent of their total net worth - an estimated $1.7 trillion worth of cash. There is currently a tremendous amount of excess cash sitting in banks. Money velocity tells us spending is at an all time low, also telling us us that cash is being hoarded.
As a bank's cash reserves dwindle its failure risk increases. An increase in bank risk will result in more account withdrawals. Enough outflow creates panic, panic creates a run on the bank, and a run on the bank creates the need for bailout. However, bailout is no longer an option. Bail-in is the new form of rescue and it scares the jeebies out of those who will fund it - this includes depositors (referred to as "creditors" in the bail-in procedures). A bail-in will convert your account cash into equity shares of a soon to be worthless bank. Your cash will be spent trying to save the bank and will end up in someone else's pockets.
At the first sign of banking trouble cash deposits will start to leave the banks, seeking safety. Once this begins it will snowball. The smart money that gets out early will be looking for safety. Where might they find it?
Footnote: Anyone that believes the FDIC can provide protection in such a crisis is a fool and should not worry about a cash deposit crisis - they will at least end up holding shares in a worthless bank.
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
Would it not make sense that all that money that is being "hoarded" would find its way into more productive assets? I would read this as a huge positive for future economic growth.
There is also nothing to prevent the banks from keeping excess reserves and even if they did decide to put those resurves into other assets, the process would take many, many years, perhaps even decades.
Regulations require banks to keep a certain amount of cash reserves. Banks are only free to gamble with excesses of that amount.
Banks have been putting the extra reserves into equities since 2009. What do you think has been driving the equity market bubble?
More productive assets to an investor are those that are more productive to him, not necessarily more productive to the economy. He will be seeking safety and returns and in that order. Will he choose a bubble that may pop at any time or will he choose what is currently out of favor? I believe many will choose the safety of gold while others turn to equities (if they are still in favor). I also believe many will want the best of both worlds - gold mining stocks.
When the safety of cash deposits (even at low interest rates) disappears so will the cash deposits. This is your next financial crisis. The question is "where will the bank depositors turn to with deposits that were rescued from the bank?"
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
You fear for something that infrequently happens, yet when it does has only a fleeting impact on PMs. You assume problems that may never hsppen, or more specifically, not happen as you expect. Thats hardly a sound investment approach.
NUGT and JNUG getting thrashed today, they have been in a big down trend lately. Eventually there will be a good rally, but the charts are broken for now.
Comments
one of many
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
Sure it is. Your next financial crisis is going to be a cash deposit crisis.
QE pumped up bank deposit reserves (this is what allows them to pass the "stress" testing). Between 2009 and 2014 bank reserves increased by $2.5 trillion of excess deposits as a direct result of the Fed’s QE. QT will drain those reserves. Currently, cash is being hoarded. According to CNBC the world’s 2,473 billionaires are hoarding 22.2 percent of their total net worth - an estimated $1.7 trillion worth of cash. There is currently a tremendous amount of excess cash sitting in banks. Money velocity tells us spending is at an all time low, also telling us us that cash is being hoarded.
As a bank's cash reserves dwindle its failure risk increases. An increase in bank risk will result in more account withdrawals. Enough outflow creates panic, panic creates a run on the bank, and a run on the bank creates the need for bailout. However, bailout is no longer an option. Bail-in is the new form of rescue and it scares the jeebies out of those who will fund it - this includes depositors (referred to as "creditors" in the bail-in procedures). A bail-in will convert your account cash into equity shares of a soon to be worthless bank. Your cash will be spent trying to save the bank and will end up in someone else's pockets.
At the first sign of banking trouble cash deposits will start to leave the banks, seeking safety. Once this begins it will snowball. The smart money that gets out early will be looking for safety. Where might they find it?
Footnote: Anyone that believes the FDIC can provide protection in such a crisis is a fool and should not worry about a cash deposit crisis - they will at least end up holding shares in a worthless bank.
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
Would it not make sense that all that money that is being "hoarded" would find its way into more productive assets? I would read this as a huge positive for future economic growth.
There is also nothing to prevent the banks from keeping excess reserves and even if they did decide to put those resurves into other assets, the process would take many, many years, perhaps even decades.
Knowledge is the enemy of fear
Regulations require banks to keep a certain amount of cash reserves. Banks are only free to gamble with excesses of that amount.
Banks have been putting the extra reserves into equities since 2009. What do you think has been driving the equity market bubble?
More productive assets to an investor are those that are more productive to him, not necessarily more productive to the economy. He will be seeking safety and returns and in that order. Will he choose a bubble that may pop at any time or will he choose what is currently out of favor? I believe many will choose the safety of gold while others turn to equities (if they are still in favor). I also believe many will want the best of both worlds - gold mining stocks.
When the safety of cash deposits (even at low interest rates) disappears so will the cash deposits. This is your next financial crisis. The question is "where will the bank depositors turn to with deposits that were rescued from the bank?"
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
You fear for something that infrequently happens, yet when it does has only a fleeting impact on PMs. You assume problems that may never hsppen, or more specifically, not happen as you expect. Thats hardly a sound investment approach.
Knowledge is the enemy of fear
Rising rates??? Lol...
NUGT and JNUG getting thrashed today, they have been in a big down trend lately. Eventually there will be a good rally, but the charts are broken for now.
switched to DUST end of '17. Waiting on the gold bottom to switch it again, this time to USLV.
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan