Sive Morten
Special Consultant to the FPA
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Fundamentals
So, it is not needed to talk a lot about gold market reaction on recent statistics. Reaction was more or less predictable, when gold jumped on poor JOLT and GDP revision reports and returned right back down after moderate NFP, showing no big drop in employment yet. There are different things that are quite interesting in relation to gold market US economy performance. Many investors are deceived right now by some political statements that special US-China committee is creating to avoid economical confrontation, Chinese government takes some special measures to support market etc. And there are a lot speculations on these topics, that maybe everything is not as bad and situation will turn to better soon. We do not want to upset anybody, but we guess not. Today we will show you very specific numbers and charts that Bloomberg (or whatever) will not show you. And also will take a look at some specific political moments that should help you to see situation better.
No peace with China
First of all, those pacifists who believe that this is just accidental misunderstanding between China and US, I would like to remind you two epic moments. First is, in the beginning of 2023 U. S. has created special committee to compete with China to combat Beijing’s growing international influence. Second is, just two days ago US Commerce Secretary Gina Raimondo has made it clear to her Chinese counterparts during a four-day visit to the country this week that there will be no let up in the economic warfare waged by Washington. It means that all these peaceful speeches have no real foundation. Even brief look at recent geopolitical events obviously shows that the US is preparing to hot confrontation with China. We've discussed and explained this multiple times in our gold reports. By the way, Japan has increased defence spending up to 2% of GDP until 2027 and 26% in this year. Meantime, China keeps selling US debt. China has reduced its holdings in US Treasury bonds to $835 billion, the lowest level since 2010, which is 14-year low, $481 billion down from peak levels. Partially they use it to support national currency and partially this is geopolitical response on external pressure.
Another bulk of rumors stand around temporal problems in Chinese economy. Some people talk that the Chinese government is kind a make strong support, and everything will return back. Recent Chinese stock market performance was showing very weak reaction on all government initiatives of dropping tax, reducing minimal capital requirements to the banks, cutting mortgage rates etc...
We would tell you just one thing - real estate prices in large cities fell by 9% per month (!). 70% of all Chinese assets are decomposed into real estate. More than a quarter of China's GDP is construction. Quite the point where the risks are concentrated this time may be China. Two of China's biggest banks on Wednesday posted sluggish profit growth as the economy struggles to bounce back after the lifting of pandemic restrictions, with one saying local government financing vehicles (LGFV) had defaulted, hitting asset quality.
Both lenders posted a shrinking net interest margin (NIM) - a key gauge of profitability - for the first half of this year, a sign that lenders are under pressure to expand credit support to the struggling economy.Chinese banks' profitability is also set to come under pressure in the near term from an expected cut in existing mortgage rates, which sources said on Tuesday was likely to be implemented soon.
Fathom has been warning for years that things have gone badly wrong in China’s real estate market, a fact which is now becoming widely appreciated as some of China’s biggest property developers default on their debts. The country is in the grip of a house price bubble which has put home ownership out of the reach of many ordinary people, while at the same time suffering from a monumental over-supply of partially completed and unoccupied housing stock which is being held back from the market.
In a speculative and highly overvalued market such as Chinese real estate, the only way for housing demand to rise is through continuous expectations of price appreciations. But market momentum has slowed and now reversed, and in Fathom’s view it is likely to prove very difficult to turn things around.
Fathom estimates that Chinese house prices range between 5 and 18 times the average household disposable income, depending on the province. Going forward, weak sentiment among buyers will continue to weigh on housing demand, and recent policy-rate cuts will not be enough to arrest the downward momentum of prices.
The result has been a dramatic fall in housing starts, which are down by more than 60% since their peak in December 2020. There is enough uncompleted housing stock to accommodate 200 million people, roughly equivalent to the population of Brazil. These houses are not reaching the market, as property developers have delayed releasing properties onto the market in a bid to avoid a collapse in prices.
The structural problems of the housing market have made investors more sceptical about the ability of highly indebted property developers to repay their debts, resulting in a sharp fall in the value of real estate bonds. Cracks in the system have already started to emerge. First Evergrande, and more recently Country Garden, two of the largest property developers in China, have defaulted on their debts and will have to go through a debt restructuring process.
Non-performing loans reached 50% of Chinese GDP in 2022 according to Fathom analysis, well above official estimates of 2.5%. A chain of defaults by property developers could cause this figure to skyrocket, shaking the foundations of China’s financial system. In this scenario, house prices would fall dramatically, sending the economy into outright recession, with GDP falling by almost 10% by 2025 relative to Fathom’s baseline scenario. If we recall 25% youth unemployment, drop of PMI and Manufacturing and US confrontation - we get a dark picture. US just needs to organize capital outflow from China, triggering financial crisis which significantly undermines China's ability to resist to external aggression. This might be the major and most important step to the victory. And high interest rates is one of the key elements of this strategy that supports capital outflow on a background of different stimulating legal acts against investments in China and other restrictions. That's why our opinion is - everything is just starting and don't be deceived by loud headlines in news. Because the root of Chinese problems are not in economy. They are in geopolitics and economy problems are just used by opponents to make maximum damage. That's all.
Back to the US
Situation in the US economy is becoming stretched and tight as money is coming to an end. The Fed and US Treasury keep tightening policy with unprecedented levels. Although we do not hear about QT, but it is under way. Money supply has dropped to unprecedented levels, never seen in history:
Money are flowing to Money market funds. And Cash is becoming insufficient to everybody - US banking deposits shows epic outflow. This leads to higher lending restrictions and drop in banking liquidity - some banks already feel problems with capital solvency ratio.
And here is specific data that we've mentioned in the beginning of the report that shows you clearly what is going on - take a look with the comments:
About significant drop in personal savings ratio we've talked already many times. In fact, now the Americans, in order to save the public debt pyramid, are sucking all the juice out of their households, completely running them in their own bonds. The rate on short government debt is already above 5%, while the issuance of new debt is enormous. It vacuums up liquidity from everywhere: bank deposits, mortgages, the stock market, gold, consumption. Indeed, for some time the Americans were given a positive real rate, at least in short-term securities.
On the charts above, the amount of cash in money market funds. These are wrappers of short American debt securities, which are a direct competitor to bank deposits.
And as you can see, the amount of money there is at record. That is, there is not enough money for everything at once (public debt and other elements of the debt / stock market). At some point, this approach must necessarily lead to a burst of some kind of bubble. The Americans are not yet trying to slow down this trend, although there are a lot of indicators at critical levels.
Many analysts point on the same things - here you could read interesting article on ten reasons why it can't be the soft landing. Pieter Schiff points on the same things - exhausting of the savings, public over-crediting, drop of ability to pay interest payments, returning of student loans payments soon, tightening of lending standards by banks, corporate defaults, etc... All these things we have discussed as well in details and with corresponding charts...
Another interesting moment is GDI - "Gross Domestic Income" indicator. Usually it is harmonized with GDP performance, but when it starts to deviate from it - is a sign of coming crisis. Simply speaking, GDP shows the volume of "production" in the economy, and GDI shows the income of economic agents. Before recessions, GDI almost stops growing, while GDP continues its trajectory. Although it is a question of time lag, but now this tendency is becoming evident:
Everything seems clear, but still few questions are still exist. Why everything except corporates' accounts and short deposits has not yet been transferred to the money market? It appears that 13-15 trillion. dollars are now depreciating at a rate of 3-4% per year, and it is not clear what for. The decision on where to shift them is made by the owners of the deposits, and not by any managers. Yes, and there are no restrictions here. If big demand for short-term US Bills and pumping money into them will lead to lower yields, then the reverse repo with the Fed is a bottomless well. At least trillions, at least quadrillions can be sent there. But no, the reverse repo continues to decline, flowing into treasuries (to the account of the Ministry of Finance) in pursuit of an additional ~0.25% yield, while 17 trillion. dollars in deposits depreciate. Completely counterintuitive and incomprehensible.
As long as everyone believes that the victory over inflation is possible - all is well. But as soon as the rate becomes lower than inflation due to the need to save the economy and everyone understands that inflation will grow, and the rate can no longer grow, then simply a huge amount of funds from money market funds (those who have already understood that money from inflation depreciate) and deposits (of those who do not seem to understand yet) will go somewhere in order to protect themselves from inflation. Where exactly depends on the narratives that will be on the market at that time, but the most obvious answer is in gold and commodities, which we have already mentioned. And this should happen relatively quickly, that is, not for years, in view of the fact that all these assets into which the money is laid out are short-term and relatively liquid.
And inflation will go up, no doubts. We have discussed this in our previous reports.
And another one important point. Previously we've shown you this chart of interest income and household spending. The nuance is that these are all numbers “in general / average”. These are interest expense figures as a percentage of interest income. That is, interest expenses are 25% of interest income. But there is another 75% interest income, right? Yep. It just some people have expenses, and others have income. For most of the population, the savings are minimal and a significant part of the income is spent on servicing debt and for them the ratio of interest expenses and income, for example, is 200-300%, while the other part has almost no debts and has large savings, some of which are decomposed into debt securities. The fact that we see an increase in the average household ratio suggests that the first category is getting worse faster than the second category is getting better. And just the same, this first category in the course of a recession will have to be saved by the state. Helicopter money or tax breaks, it doesn't matter. It is important that this should once again lead to stimulation of demand and growth of inflation.
Taking it all together
We will start from a farer standing facts. First is inner political confrontation in the US is reaching its peak. Democrats are panic - stricken to loose the power. We're not occasionally published the recent Tucker Carlson Interview, when he speaks that CIA could go on any steps, right up to assassinate Republican candidate, which is D. Trump for now. In fact, T. Carlson take huge risk, telling that, telling about war escalation in 2024 and his possible interview with V. Putin. In fact, by discovering that T. Carlson is signing his own death warrant. All these things mean that the fundamental agreement inside of the US political elite is broken - earlier all former Presidents and big politicians had unspoken legal immunity. That was a basic agreement of political elite. They could struggle but keep some limits. With the elections falsification and D. Trump legal prosecution all limits are broken. This is very dangerous precedent. In fact they intend to arrest D. Trump right at election day. What other proves do we need?
Now, we're entering in Presidential race. And right at the eve of October WHO reported a sharp increase in the incidence of COVID-19 in the world:
It is hard to believe that they are so stupid to play the same card for the second time ... But some all-American and all-European lockdown for a month or two should be quite enough, to justify another non-resolution of problems and helicopter money for the second time. But it’s even interesting to see what will eventually become a trigger for the crisis. Besides, earlier we've shown that preparation to this stands under way.
Why we're talking about all this stuff? Because Democrats right now have two possible scenarios soft and hard. We're not considering now hard scenarios, but, as T. Carlson said, if they obviously start loosing the power, they could provoke civil war in the US by eliminating D. Trump, start hot war stage against Russia, or, what is more probable China and declare martial law and curfew. This will let them to postpone or even cancel elections. But, we treat it as ultimate scenario.
First, they are going to start with soft measures. First is, they have to dump inflation as strong as possible before election race will start. Everybody knows already, that it can't be any victory over inflation. It could be just disguised for some time by restrictive rate policy.
That's why we do not believe in any Fed pivot any time soon. They will rise rates at least once in November, but could do it twice. Why do they need it? Because later they will start new a kind of lockdown under hazard of new CV epidemy. It will not be as hard and strict as previous one, but quite enough to disperse everybody and lock everybody at homes. This is absolutely needed to reduce social tensions. Then, to get electorate voices - they start new QE.
Obviously it will lead to inflation jump again, but it will happen only in 2025, while in election 2024 year people keep enjoying prosperity. This is how they count to win elections. They will create the vision of resolving of any problems and total economy recovery, by just gifting money to people. That's why now they need to dump inflation as hard as possible and to keep it dampened right until new QE to postpone inflation jump as far as possible.
Indirectly the US Treasury strategy confirms this idea. Why US Treasury mostly borrows in short-term Bills and Notes? it would be cheaper to do it in long-term bonds - with adjustment to inflation it would cost them 1-2% max. While in short-term it is expensive and needs to be refinanced over time, searching new demand for raising bonds supply. Because with the strategy that they have chosen - the short-term debt is preferable. They decide to take full advantage of the IMF recommendations - making a zero, or better, a negative rate and launching high inflation. Then it is best to have as short a debt as possible now, which can be quickly refinanced.
The fact that they have 40% of their debt refinanced in the next 2 years, of course, does not mean that this will happen right in the nearest time. On the contrary, in their place, realizing that soon the rate will be negative, and inflation will go up, I I would have had the maximum possible budget deficit and financed it with short-term securities, which I could soon refinance to a conditional zero and depreciate inflation.
The question is who will buy these papers. And the answer is obvious, really. This is the Fed and, oddly enough, the banks. Banks don't care, even with high inflation they will have client money at zero or minus. In extreme cases, they will borrow from the Fed under the same treasuries. But the public market for government debt, of course, will be almost non-existent.
For the gold market everything becomes quite clear. Whatever scenario will be chosen, if even nobody will do nothing - inflation will grow and in perspective of 8-24 months gold could start new long-term rally. We need to be wait just a bit. And gold actually holds the punch of high interest rates quite well.
So, it is not needed to talk a lot about gold market reaction on recent statistics. Reaction was more or less predictable, when gold jumped on poor JOLT and GDP revision reports and returned right back down after moderate NFP, showing no big drop in employment yet. There are different things that are quite interesting in relation to gold market US economy performance. Many investors are deceived right now by some political statements that special US-China committee is creating to avoid economical confrontation, Chinese government takes some special measures to support market etc. And there are a lot speculations on these topics, that maybe everything is not as bad and situation will turn to better soon. We do not want to upset anybody, but we guess not. Today we will show you very specific numbers and charts that Bloomberg (or whatever) will not show you. And also will take a look at some specific political moments that should help you to see situation better.
No peace with China
First of all, those pacifists who believe that this is just accidental misunderstanding between China and US, I would like to remind you two epic moments. First is, in the beginning of 2023 U. S. has created special committee to compete with China to combat Beijing’s growing international influence. Second is, just two days ago US Commerce Secretary Gina Raimondo has made it clear to her Chinese counterparts during a four-day visit to the country this week that there will be no let up in the economic warfare waged by Washington. It means that all these peaceful speeches have no real foundation. Even brief look at recent geopolitical events obviously shows that the US is preparing to hot confrontation with China. We've discussed and explained this multiple times in our gold reports. By the way, Japan has increased defence spending up to 2% of GDP until 2027 and 26% in this year. Meantime, China keeps selling US debt. China has reduced its holdings in US Treasury bonds to $835 billion, the lowest level since 2010, which is 14-year low, $481 billion down from peak levels. Partially they use it to support national currency and partially this is geopolitical response on external pressure.
Another bulk of rumors stand around temporal problems in Chinese economy. Some people talk that the Chinese government is kind a make strong support, and everything will return back. Recent Chinese stock market performance was showing very weak reaction on all government initiatives of dropping tax, reducing minimal capital requirements to the banks, cutting mortgage rates etc...
We would tell you just one thing - real estate prices in large cities fell by 9% per month (!). 70% of all Chinese assets are decomposed into real estate. More than a quarter of China's GDP is construction. Quite the point where the risks are concentrated this time may be China. Two of China's biggest banks on Wednesday posted sluggish profit growth as the economy struggles to bounce back after the lifting of pandemic restrictions, with one saying local government financing vehicles (LGFV) had defaulted, hitting asset quality.
Both lenders posted a shrinking net interest margin (NIM) - a key gauge of profitability - for the first half of this year, a sign that lenders are under pressure to expand credit support to the struggling economy.Chinese banks' profitability is also set to come under pressure in the near term from an expected cut in existing mortgage rates, which sources said on Tuesday was likely to be implemented soon.
Fathom has been warning for years that things have gone badly wrong in China’s real estate market, a fact which is now becoming widely appreciated as some of China’s biggest property developers default on their debts. The country is in the grip of a house price bubble which has put home ownership out of the reach of many ordinary people, while at the same time suffering from a monumental over-supply of partially completed and unoccupied housing stock which is being held back from the market.
In a speculative and highly overvalued market such as Chinese real estate, the only way for housing demand to rise is through continuous expectations of price appreciations. But market momentum has slowed and now reversed, and in Fathom’s view it is likely to prove very difficult to turn things around.
Fathom estimates that Chinese house prices range between 5 and 18 times the average household disposable income, depending on the province. Going forward, weak sentiment among buyers will continue to weigh on housing demand, and recent policy-rate cuts will not be enough to arrest the downward momentum of prices.
The result has been a dramatic fall in housing starts, which are down by more than 60% since their peak in December 2020. There is enough uncompleted housing stock to accommodate 200 million people, roughly equivalent to the population of Brazil. These houses are not reaching the market, as property developers have delayed releasing properties onto the market in a bid to avoid a collapse in prices.
The structural problems of the housing market have made investors more sceptical about the ability of highly indebted property developers to repay their debts, resulting in a sharp fall in the value of real estate bonds. Cracks in the system have already started to emerge. First Evergrande, and more recently Country Garden, two of the largest property developers in China, have defaulted on their debts and will have to go through a debt restructuring process.
Non-performing loans reached 50% of Chinese GDP in 2022 according to Fathom analysis, well above official estimates of 2.5%. A chain of defaults by property developers could cause this figure to skyrocket, shaking the foundations of China’s financial system. In this scenario, house prices would fall dramatically, sending the economy into outright recession, with GDP falling by almost 10% by 2025 relative to Fathom’s baseline scenario. If we recall 25% youth unemployment, drop of PMI and Manufacturing and US confrontation - we get a dark picture. US just needs to organize capital outflow from China, triggering financial crisis which significantly undermines China's ability to resist to external aggression. This might be the major and most important step to the victory. And high interest rates is one of the key elements of this strategy that supports capital outflow on a background of different stimulating legal acts against investments in China and other restrictions. That's why our opinion is - everything is just starting and don't be deceived by loud headlines in news. Because the root of Chinese problems are not in economy. They are in geopolitics and economy problems are just used by opponents to make maximum damage. That's all.
Back to the US
Situation in the US economy is becoming stretched and tight as money is coming to an end. The Fed and US Treasury keep tightening policy with unprecedented levels. Although we do not hear about QT, but it is under way. Money supply has dropped to unprecedented levels, never seen in history:
Money are flowing to Money market funds. And Cash is becoming insufficient to everybody - US banking deposits shows epic outflow. This leads to higher lending restrictions and drop in banking liquidity - some banks already feel problems with capital solvency ratio.
And here is specific data that we've mentioned in the beginning of the report that shows you clearly what is going on - take a look with the comments:
About significant drop in personal savings ratio we've talked already many times. In fact, now the Americans, in order to save the public debt pyramid, are sucking all the juice out of their households, completely running them in their own bonds. The rate on short government debt is already above 5%, while the issuance of new debt is enormous. It vacuums up liquidity from everywhere: bank deposits, mortgages, the stock market, gold, consumption. Indeed, for some time the Americans were given a positive real rate, at least in short-term securities.
On the charts above, the amount of cash in money market funds. These are wrappers of short American debt securities, which are a direct competitor to bank deposits.
And as you can see, the amount of money there is at record. That is, there is not enough money for everything at once (public debt and other elements of the debt / stock market). At some point, this approach must necessarily lead to a burst of some kind of bubble. The Americans are not yet trying to slow down this trend, although there are a lot of indicators at critical levels.
Many analysts point on the same things - here you could read interesting article on ten reasons why it can't be the soft landing. Pieter Schiff points on the same things - exhausting of the savings, public over-crediting, drop of ability to pay interest payments, returning of student loans payments soon, tightening of lending standards by banks, corporate defaults, etc... All these things we have discussed as well in details and with corresponding charts...
Another interesting moment is GDI - "Gross Domestic Income" indicator. Usually it is harmonized with GDP performance, but when it starts to deviate from it - is a sign of coming crisis. Simply speaking, GDP shows the volume of "production" in the economy, and GDI shows the income of economic agents. Before recessions, GDI almost stops growing, while GDP continues its trajectory. Although it is a question of time lag, but now this tendency is becoming evident:
Everything seems clear, but still few questions are still exist. Why everything except corporates' accounts and short deposits has not yet been transferred to the money market? It appears that 13-15 trillion. dollars are now depreciating at a rate of 3-4% per year, and it is not clear what for. The decision on where to shift them is made by the owners of the deposits, and not by any managers. Yes, and there are no restrictions here. If big demand for short-term US Bills and pumping money into them will lead to lower yields, then the reverse repo with the Fed is a bottomless well. At least trillions, at least quadrillions can be sent there. But no, the reverse repo continues to decline, flowing into treasuries (to the account of the Ministry of Finance) in pursuit of an additional ~0.25% yield, while 17 trillion. dollars in deposits depreciate. Completely counterintuitive and incomprehensible.
As long as everyone believes that the victory over inflation is possible - all is well. But as soon as the rate becomes lower than inflation due to the need to save the economy and everyone understands that inflation will grow, and the rate can no longer grow, then simply a huge amount of funds from money market funds (those who have already understood that money from inflation depreciate) and deposits (of those who do not seem to understand yet) will go somewhere in order to protect themselves from inflation. Where exactly depends on the narratives that will be on the market at that time, but the most obvious answer is in gold and commodities, which we have already mentioned. And this should happen relatively quickly, that is, not for years, in view of the fact that all these assets into which the money is laid out are short-term and relatively liquid.
And inflation will go up, no doubts. We have discussed this in our previous reports.
And another one important point. Previously we've shown you this chart of interest income and household spending. The nuance is that these are all numbers “in general / average”. These are interest expense figures as a percentage of interest income. That is, interest expenses are 25% of interest income. But there is another 75% interest income, right? Yep. It just some people have expenses, and others have income. For most of the population, the savings are minimal and a significant part of the income is spent on servicing debt and for them the ratio of interest expenses and income, for example, is 200-300%, while the other part has almost no debts and has large savings, some of which are decomposed into debt securities. The fact that we see an increase in the average household ratio suggests that the first category is getting worse faster than the second category is getting better. And just the same, this first category in the course of a recession will have to be saved by the state. Helicopter money or tax breaks, it doesn't matter. It is important that this should once again lead to stimulation of demand and growth of inflation.
Taking it all together
We will start from a farer standing facts. First is inner political confrontation in the US is reaching its peak. Democrats are panic - stricken to loose the power. We're not occasionally published the recent Tucker Carlson Interview, when he speaks that CIA could go on any steps, right up to assassinate Republican candidate, which is D. Trump for now. In fact, T. Carlson take huge risk, telling that, telling about war escalation in 2024 and his possible interview with V. Putin. In fact, by discovering that T. Carlson is signing his own death warrant. All these things mean that the fundamental agreement inside of the US political elite is broken - earlier all former Presidents and big politicians had unspoken legal immunity. That was a basic agreement of political elite. They could struggle but keep some limits. With the elections falsification and D. Trump legal prosecution all limits are broken. This is very dangerous precedent. In fact they intend to arrest D. Trump right at election day. What other proves do we need?
Now, we're entering in Presidential race. And right at the eve of October WHO reported a sharp increase in the incidence of COVID-19 in the world:
It is hard to believe that they are so stupid to play the same card for the second time ... But some all-American and all-European lockdown for a month or two should be quite enough, to justify another non-resolution of problems and helicopter money for the second time. But it’s even interesting to see what will eventually become a trigger for the crisis. Besides, earlier we've shown that preparation to this stands under way.
Why we're talking about all this stuff? Because Democrats right now have two possible scenarios soft and hard. We're not considering now hard scenarios, but, as T. Carlson said, if they obviously start loosing the power, they could provoke civil war in the US by eliminating D. Trump, start hot war stage against Russia, or, what is more probable China and declare martial law and curfew. This will let them to postpone or even cancel elections. But, we treat it as ultimate scenario.
First, they are going to start with soft measures. First is, they have to dump inflation as strong as possible before election race will start. Everybody knows already, that it can't be any victory over inflation. It could be just disguised for some time by restrictive rate policy.
That's why we do not believe in any Fed pivot any time soon. They will rise rates at least once in November, but could do it twice. Why do they need it? Because later they will start new a kind of lockdown under hazard of new CV epidemy. It will not be as hard and strict as previous one, but quite enough to disperse everybody and lock everybody at homes. This is absolutely needed to reduce social tensions. Then, to get electorate voices - they start new QE.
Obviously it will lead to inflation jump again, but it will happen only in 2025, while in election 2024 year people keep enjoying prosperity. This is how they count to win elections. They will create the vision of resolving of any problems and total economy recovery, by just gifting money to people. That's why now they need to dump inflation as hard as possible and to keep it dampened right until new QE to postpone inflation jump as far as possible.
Indirectly the US Treasury strategy confirms this idea. Why US Treasury mostly borrows in short-term Bills and Notes? it would be cheaper to do it in long-term bonds - with adjustment to inflation it would cost them 1-2% max. While in short-term it is expensive and needs to be refinanced over time, searching new demand for raising bonds supply. Because with the strategy that they have chosen - the short-term debt is preferable. They decide to take full advantage of the IMF recommendations - making a zero, or better, a negative rate and launching high inflation. Then it is best to have as short a debt as possible now, which can be quickly refinanced.
The fact that they have 40% of their debt refinanced in the next 2 years, of course, does not mean that this will happen right in the nearest time. On the contrary, in their place, realizing that soon the rate will be negative, and inflation will go up, I I would have had the maximum possible budget deficit and financed it with short-term securities, which I could soon refinance to a conditional zero and depreciate inflation.
The question is who will buy these papers. And the answer is obvious, really. This is the Fed and, oddly enough, the banks. Banks don't care, even with high inflation they will have client money at zero or minus. In extreme cases, they will borrow from the Fed under the same treasuries. But the public market for government debt, of course, will be almost non-existent.
For the gold market everything becomes quite clear. Whatever scenario will be chosen, if even nobody will do nothing - inflation will grow and in perspective of 8-24 months gold could start new long-term rally. We need to be wait just a bit. And gold actually holds the punch of high interest rates quite well.
Last edited:
. Anyway, due downside momentum, now gold shows downside retracement as it is suggested by B&B...